daniels ib14 stppt04 ge

Copyright © 2013 Pearson Education 4-1

International Business

Environments & Operations

14e Global Edition

Daniels ● Radebaugh ● Sullivan


Chapter 4

The Economic Environments Facing

Business


Learning Objectives To communicate the importance of

economic analysis To discuss the idea of economic freedom To profile the characteristics of the types

of economic systems To introduce the notion of state capitalism To profile indicators of economic

development, performance, and potential


IntroductionLearning Objective 1:To communicate the importance of economic analysis


Introduction Managers assess a country’s economic

environment knowing Countries differ in different ways Economic and political changes alter market

circumstances It is important to understand connections,

change, and consequences The challenges of the comeback Choices of citizens, policymakers, and

institutions


International Economic Analysis

A universal assessment of economic environments is difficult because it is difficult to stipulate a definitive 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


International Economic Analysis

Economic Factors Affecting International Business Operations


Economic FreedomLearning Objective 2: To discuss the idea of economic freedom


Economic Freedom Economic freedom – people have the

right to work, produce, consume, save, and invest the way they prefer measured across business freedom, monetary

freedom, fiscal freedom, investment freedom, freedom from corruption, property rights, trade freedom, government size, financial freedom, and labor freedom


Economic FreedomEconomic Freedom by Region, with Population


Economic FreedomGlobal Distribution of Economic Freedom


Value of Economic Freedom

Economic freedom affects Growth rates Productivity Income levels Inflation Employment Life expectancy Literacy Political openness Environmental sustainability


Trends in Economic Freedom

The trend toward increased economic freedom is no longer certain Questions about the legitimacy of free markets The benefits of more state control


Types of Economic Systems

Learning Objective 3: To profile the characteristics of the types of economic systems



An economic system refers to the mechanism that deals with the production, distribution, and consumption of goods and services

Types Market economy Command economy Mixed economy


Market Economy In a market economy individuals rather

than governments make most economic decisions Capitalism

private ownership of capital Laissez-faire

governmental noninterference in economic affairs


Command EconomyLearning Objective 4: To introduce the notion of state capitalism


Command Economy In a command economy the visible hand

of the state supersedes the invisible hand of individuals Government

owns and controls resources determines prices

Communism


Mixed Economy Most economies are mixed economies

fall between market and command economies Socialism

regulate economic activity with a focus on social equality and a fair distribution of wealth


State Capitalism: Detour or Destination?

State capitalism refers to a system in which the government explicitly manipulates market outcomes for political purposes promote certain industries to encourage

economic development develop national companies into global leaders foreign companies restricted from strategic

industries


Economic Development, Performance, and PotentialLearning Objective 5:To profile indicators of economic development, performance, and potential


Economic Development, Performance, and Potential

Broad classes of countries include developing countries

largest number of countries low per capita income

emerging economies fast growing, relatively prosperous BRICs – Brazil, Russia, India, and China

developed countries high per capita income and standard of

living like the U.S., Japan, France, Australia


Gross National Income Gross national income (GNI)

the broadest measure of economic activity for a country

Gross national product (GDP) the total value of all final goods and services

produced within a nation in a particular year Gross domestic product (GDP)

the total market value of goods and services produced by workers and capital within a nation’s borders


Improving Analysis GNI data should be adjusted for

the growth rate of the economy the number of people in a country the local cost of living


Improving AnalysisGNI per capita, 2009


Improving AnalysisGNI per capita adjusted for Purchasing Power Parity


Broader Conceptions of Performance and Potential

Green economics gauge economic performance in terms of the

effect of current choices on long-term sustainability

Sustainable development meet the needs of the present without

compromising the ability of future generations to meet their own needs

Happynomics importance of emotional prosperity in addition

to financial prosperity


Features of an Economy Managers should also consider

Inflation Unemployment Debt Income distribution Poverty Balance of payments


Inflation Inflation

a measure of the increase in the cost of living Deflation

when prices for products go down not up Reflation

increase the money supply and reduce taxes to accelerate economic activity


Unemployment Unemployment rate

share of unemployed workers seeking employment for pay relative to the total civilian labor force

Misery index the sum of a country’s inflation and

unemployment rates


Debt Debt

the total of a government’s financial obligations

internal debt external debt

Growing public debt signals tax increases reduced growth rising inflation increasing austerity


Income Distribution Income distribution

estimates the proportion of the population that earns various levels of income

Gini coefficient measures the extent to which the distribution

of resources deviates from a perfectly equal distribution


Poverty Poverty the state of having little or no

money and few or no material possessions extreme poverty

less than $1.25 per day moderate poverty

less than $2.00 per day Today the world population is 80% poor,

10% middle income, and 10% rich Base of the Pyramid

Frugal engineering


Balance of Payments Balance of payments

reports a country’s trade and financial transactions with the rest of the world

Current account tracks merchandise trade

Capital account tracks loans given to foreigners and loans

received by citizens


Balance of PaymentsComponents of a Country’s Balance of Payments


Balance of PaymentsCurrent Account Balances: The Top and Bottom Five


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daniels ib14 stppt04 ge

Documents

gross national income

economic analysis

economic freedom

state capitalism

income distribution

economic development

economic systems

improving analysisgni