COMMANDTRANSITION

FREE MARKETHOW DIFFERENT ECONOMIC SYSTEMS

AFFECT INTERNATIONAL BUSINESS

MGMT1101 – WEEK 12

THEQUESTION

Economic systems among countries exist in a spectrum with command economy at one end, and free market economy on the other.

How would the characteristics of this range of economic systems affect the risks and operations of international business?

Use three specific countries in your presentation to exemplify your ideas.

1Types of

ECONOMICSYSTEMS

PRESENTATION OVERVIEW

2 3CASE

STUDIESGroup

DISCUSSION

WHAT IS AN ECONOMIC SYSTEM?1

An economic system is....

An organized way in which a state or nation allocatesits resources, and distributes goods and services in the national community.

SPECTRUM OFECONOMIC SYSTEMS

COMMAND TRANSITION FREE MARKET

HIGH level of government control LOW level of government control

EMERGING

WHAT ARE YOUR THOUGHTS?

HOW DO THEY COMPARE?

FREE MARKETECONOMY

Private property rightsIncentives for individual entrepreneurship

Resources allocated through market forcesConsumer preferences

Open / globalised economyProfit motive for firms

COMMAND ECONOMY

State ownership of resourcesLack of individual incentives

Resources allocated centrallyPolitical preferences

Closed economyFirms seek to fulfil quotas

WHAT ABOUTTRANSITION ECONOMIES?

What brings about the

TRANSITION?

POLITICALCHANGE

MACROECONOMICSTABILISATION

MARKETISATION INSTITUTIONDEVELOPMENT

CASE STUDIES2

North Korea China Hong Kong

THREE ECONOMIESin the spotlight...

COMMAND TRANSITION FREE MARKET

Why these economies?

So close to each other.....yet so different!

NORTH KOREA

Features ofNORTH KOREA

Largest command economy in the world - USD$12.3b

Operates under a totalitarian government

High barriers to FDI

Has sanctions imposed on by the UN

Case study:NosotekFirst western invested IT joint venture company in North Korea.

Low tariffs + skilled labour = opportunity!

Develops apps and games for iPhone, wii, Facebook

Client confidentiality is well hidden

Uses many mediators to overcome sanctions and stigma

CHINA

Features ofCHINA

Largest transition economy in the world - USD$7.318 trillion

Economic liberalisation without political change

High degree of state intervention

Rule of law still not guaranteed

Case study:VolkswagenBegan partnership with a Chinese consortium in the 1980s

Builds models in China, for China

Shares technology with China

Able to build good relationships with the Chinese government

Has 18% market share, nearly 1 in 5 cars in China is a VW!

HONG KONG

Where is

HONG KONG?

How big isHONG KONG?

A. 1/2 size of Sydney

B. 1/6 size of Sydney

C. 1/12 size of Sydney

SIZECOMPARISON

Features ofHONG KONGPart of China but has own capitalist economy and government

Freest economy in the world (WTO)

Low government interference

What could go wrong?

Case study:Krispy KremeOperated 9 franchises in 2006, closed down to 2 by 2009

Lack of market research

High rental costs

Too many competitors

DISCUSSION3

Question

Our case studies show that there are 2 sides to every coin.

Have you changed your thoughts about particular economic systems?

THANK YOU!