International bussiness the challenge of global competition 11e chapter 08

Learning Objectives State the purpose of economic analysis  Identify different categories based on levels of national economic development and the common characteristics of developing

Economic and Socioeconomic

Forces

chapter eight

Learning Objectives

 State the purpose of economic analysis

 Identify different categories based on levels of national economic development and the common characteristics

of developing nations

 Recognize the economic and socioeconomic

dimensions of the economy and different indicators

used to assess them



Learning Objectives

 Discuss the new definition of economic

development, which includes more than economic growth

 Explain the degree to which labor costs can vary

from country to country

 Discuss the significance for businesspeople of the

International Economic Analyses

(Table 8.1)

 When a firm enters overseas markets,

economic analyses become more complex

International Economic

Analysis

 Sources for Economic Information

 The Commercial officers in embassies

 The World Bank

 The United Nations

 The International Monetary Fund

 The Organization for Economic

Cooperation and Development

Levels of Economic Development

• Developed

– A classification for all industrialized

nations, which are the most technically

developed

• Developing

– A classification for lower income nations,

which are less technically developed

Levels of Economic Development

• Newly industrialized economies (NIEs)

– The fast-growing upper-middle-income

and high income economies of South

Korea, Taiwan, Hong Kong, and Singapore

• Newly industrializing countries (NICs)

– The four Asian Tigers and the

middle-income economies such as Brazil, Mexico, Malaysia, Chile, and Thailand

Dimensions of the Economy

 Important Economic Indicators

Gross National Income (GNI)

Dimensions of the Economy

• Gross National Income (GNI)

– The measure of the income generated by a

nation’s residents from international and

domestic activity

– Preferred over GDP

• GNI/Capita

– Used to compare countries with respect to

the well-being of their citizens and to

assess market or investment potential

Underground economy

• Underground economy

– That part of a nation’s income not

measured by official statistics

Purchasing Power Parity

• Purchasing Power Parity

– The number of units of a currency

required to buy the same amount of goods and services in a domestic market that

$1.00 would buy in the U.S.

– Helps to make comparisons possible

across economies

Dimensions of the Economy

 Income Distribution

 A measure of how a nation’s income is

apportioned among its people

 Reported as the percentage of income

received by population quintiles

 Data gathered by World Bank

Income more evenly distributed in richer nations

Income redistribution proceeds slowly

Income inequality increases in early stages

Dimensions of the Economy

Private Consumption Based on

Purchasing Power Parity

Dimensions of the Economy

 Unit labor costs

Total direct labor costs divided by units

produced

Countries with slower-rising unit labor

costs attract management’s attention

Dimensions of the Economy

• Reasons for relative changes in

labor costs

– Compensation

– Productivity

– Exchange rates

• International firms must keep close

watch on labor rates around the

world

Dimensions of the Economy

low-income nations affect multinational

firms

– When foreign exchange must be used for loan

repayment, import of components used in

local production is reduced

– Local industries must manufacture these

components or production must stop

Major International Debtors

Socioeconomic Dimensions

• Total Population

– Most general indicator of potential market

size

– Population size, used alone, is not good

indicator of economic strength and market potential

Socioeconomic Dimensions

• Age Distribution

– Developing countries have more youthful

populations than do industrial countries

– Birthrates decreasing worldwide

– Population of developing countries

accounts for over three-quarters of

world’s population

Population Growth

Forces Reducing Birthrates

programs

with enhanced status for women

Concern: Birthrate Decline

Europeans not marrying

unemployment rate in the EU will be replaced by a shortage of workers

Concern: Birthrate Decline

– By 2025, Japan’s population aged 65 and

older will make up 26.8 percent of total

population

– By 2025, Japan will have twice as many

old people as children

Socioeconomic Dimensions

• Population Density

– A measure of the number of inhabitants

per area unit

– product distribution and communications

simpler and cheaper in densely populated

countries

Socioeconomic Dimensions

• Population Distribution

– A measure of how the inhabitants are

distributed over a nation’s area

– Changing population distribution: rural-

to-urban shift

Rural-to-Urban Shift

(Table 8.8)

– Results in larger family incomes

– Results in a greater market for

convenience goods

Population Distribution