Download International Business

International Business
Environments and Operations
Part Two
Comparative Environmental
Frameworks
4-1
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Chapter Four
The Economic
Environments
Facing
Businesses
4-2
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Chapter Objectives
• To understand the importance of economic
analysis
• To identify the major dimensions of international
economic analysis
• To compare and contrast macroeconomic
indicators
• To profile the characteristics of the types of
economic systems
• To discuss the idea of economic freedom
• To profile the drivers of economic transition
4-3
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Importance of Economic
Environments
• Managers study economic environments to
estimate how market trends and government
policy influence the performance of their
companies.
• A country’s economic policies are a leading
indicator of government’s goals and its planned
use of economic tools and market reforms.
• Economic development directly impacts citizens,
managers, companies, policymakers, and
institutions.
4-4
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
International Economic Analysis
• Three conditions hamper the development
of a universal scheme:
 Difficulty in choosing a single set of indicators to
estimate the performance and potential of a country’s
economy.
 Today’s set of perfect measures may prove imperfect
tomorrow.
 Interdependencies complicate interpreting the
relationship among elements of the economic
environment.
4-5
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Economic Factors Affecting
International Business Operations
4-6
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Elements of the Economic
Environment
• Gross Domestic Product (GDP): C+I+G+(X-M)
• Gross National Income (GNI): GDP plus the
international production activities of national
companies
• Gross National Product (GNP): GDP plus the
income earned by a country’s citizens abroad,
minus the income earned by foreigners from
domestic production.
• http://www.economicshelp.org/blog/3491/economics/differencebetween-gnp-gdp-and-gni/
4-7
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Improving the Power of GNI
• Per Capita Conversion
• Rate of Change
• Purchasing Power Parity
 Penn World Tables
(http://pwt.econ.upenn.edu/php_site/pwt_index.php)
• Degree of Human Development
 Human Dev. Report (http://hdr.undp.org/en/)
• Green Measures




GNH (http://www.grossnationalhappiness.com/articles/)
GPI (http://gpiatlantic.org/gpi.htm)
CIW (http://ciw.ca/en/)
Happy Planet Index (http://www.happyplanetindex.org/)
4-8
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
HDI rank
country
tcgdp
cgdp
cc
cg
ci
cgnp
Australia
1011392.45
47565.84
60.58
9.32
30.55
97.39
2
Brazil
2090966.48
10521.17
74.09
9.30
16.68
97.96
85
Canada
1340246.22
40022.88
71.01
9.25
21.46
98.60
6
227268.53
13689.23
64.25
5.01
22.99
93.75
44
China_1
10739325.57
8113.77
32.21
15.71
44.30
100.87
101
China_2
11342464.26
8569.46
39.63
15.65
37.18
100.87
101
Cuba
141261.02
12714.76
68.99
28.10
3.11
98.50
51
France
2215112.51
34385.48
71.94
11.34
18.66
100.82
20
Germany
2964652.12
36225.86
64.93
12.23
17.87
101.41
9
273604.09
38781.59
59.94
3.29
29.72
98.33
13
India
4150974.10
3588.02
60.70
12.91
30.89
99.47
134
Japan
4449224.42
35011.48
65.92
12.22
21.58
103.14
12
Korea
1293975.88
26674.97
56.37
8.23
31.50
100.53
15
Mexico
1433236.10
12887.42
77.91
2.96
20.57
98.34
57
Norway
263341.09
56498.84
54.07
9.21
21.85
98.58
1
Russia
2199201.71
15703.98
69.66
9.25
14.02
96.80
66
Singapore
238632.67
51230.72
34.55
10.98
34.95
98.32
26
South Africa
424160.34
8647.16
70.80
6.34
23.70
97.78
123
2293945.10
37000.90
78.98
9.13
14.27
102.00
28
14003780.00
45613.88
78.53
7.83
16.39
99.24
4
Chile
Hong Kong
United Kingdom
USA
4-9
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Is Growth Good?
• In class debate
• In English, each person should write down 3 good things
about economic growth
• In English, each person should write down 3 bad things
about economic growth
• 2 groups – 1 for growth, 1 against
 3 things either for or against
• I’ll pick 5 people for the debate from each side
 3 people, each takes one idea
 1 person argue against other side
 1 person summary
4-10
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Other Economic Data
to Look At
4-11
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Inflation
•
•
•
•
Cost of Living
Implications of Chronic Inflation
Price Indexes & Measurement Problems
Deflation
4-12
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Unemployment
• Problems in Measuring
• Variation in Public Support
• The Pension Problem
4-13
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Debt
• Internal Debt: Portion of the government debt
that is denominated in the country’s own
currency and held by domestic residents
• External Debt: Debt owed to foreign creditors
and denominated in foreign currency.
• Other Debt
 Regional (State, Province)
 Municipal
 Consumer
4-14
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Income Distribution
• Gini Coefficient
 (0 – equal to 1 – very unequal)
 Urban vs. Rural
• Often a big difference – higher incomes in cities
 Income Inequality has been growing rather
drastically
4-15
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Poverty
• World Bank Definition
• Poverty and the Economic Environment
• The Potential of the Poor
 Bottom of the Pyramid Phenomenon
4-16
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Labor Costs
• Labor and Total Costs
 For many goods and services, the cost of
labor is a key element of total costs.
Consequently, companies scan the world,
looking for markets that offer lower-cost and
high-skilled labor.
4-17
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Productivity
Productivity measures the
efficiency with which products
are produced.
4-18
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Balance of Payments
• Current and Capital Accounts
 Current Account: tracks all trade activity in
merchandise
 Capital Account: tracks both loans given to
foreigners and loans received by citizens
• BOP and Economic Stability
4-19
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Definition of Economic System
• A mechanism that deals with the
production, distribution, and consumption
of goods and services
• Types:
 Market economy
 Command economy
 Mixed economy
4-20
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
The Dynamic of Economic
Transitions
• The Allure of Market Economies
• Belief in Free Markets
• Economic Freedom
 http://www.heritage.org/index/ranking
• Extremely pro free-market group
4-21
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Dimensions of The Economic Freedom Index
•
•
•
•
•
•
•
•
•
•
Business freedom
Trade freedom
Monetary freedom
Freedom from
government
Fiscal freedom
Property rights
Investment freedom
Financial freedom
Freedom from corruption
Labor freedom
4-22
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
4-23
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Future: Economic Freedom Pushback
and the Rise of the Mixed Economy
• Return of the Mixed Economy
• Free-Market Strike Back
• The Battle Engaged
4-24
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
Means of Economic Transition
•
•
•
•
Liberalizing economic activity
Reforming business activity
Establishing legal and institutional frameworks
Success is linked to how well the government
deals with:





Privatization
Regulation
Property right protection
Fiscal and monetary reform
Antitrust legislation
4-25
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
A Short Project
• Here’s an English website about Wuhan
that addresses the last 3 chapters
 http://bit.ly/KDlPM7
 (http://english.wh.gov.cn/publish/english/category/72/
1201204161612120002.html)
• It is designed to attract foreign business
• In your opinion, what is good, what is bad,
and what would you change?
• 3 pages in English
4-26
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall
All rights reserved. No part of this publication
may be reproduced, stored in a retrieval
system, or transmitted, in any form or by any
means, electronic, mechanical, photocopying,
recording, or otherwise, without the prior written
permission of the publisher. Printed in the
United States of America
4-27
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall