Lecture International business (11/e) - Chapter 8: Economic and socioeconomic forces

After completing this chapter, students will be able to: 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,...

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 large foreign debts of some nations

International Economic Analyses

(Table 8.1)

 Economic Analysis

 When a firm enters overseas markets,

economic analyses become more complex

International Economic

Analysis

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

– The measure of the income generated by

a nation’s residents from international

and domestic activity

– Preferred over GDP

– Used to compare countries with respect

to the well-being of their citizens and to assess market or investment potential

• 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

 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

and making essential purchases

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

• Large international debts of middle- and

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

– 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

• Government supported family planning

programs

• Improved levels of health, education along

with enhanced status for women

• More even distribution of income

• Greater degree of urbanization

Concern: Birthrate Decline

• Concern in Developed Nations: Europe

• An increasing number of young

Europeans not marrying

• Marriages are later, with fewer children

• By 2025, the present 9 percent

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

Concern: Birthrate Decline

• Concern in Developed Nations: Japan

– 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)

convenience goods

Population Distribution