International Business
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Slide 1 International Business Chapter Four The Economic Environment Slide 2 Introduction All countries differ in terms of: -levels of economic development -economic performance - economic potential A firm’s managers must understand the economic environments of those countries in which it operates, as well as those of countries in which it does not, in order to predict how trends and events the world over will likely affect firm performance. Slide 3 Factor Conditions Factor conditions: a nation’s inputs into the production process, such as human, physical, knowledge, and capital resources and infrastructure Not only is it difficult to specify a definitive set of economic indicators that precisely assess the performance and potential of a nation’s economy, but it is also difficult to understand the systematic relationship of one variable to another. Slide 4 Gross National Income Gross national income (GNI): the market value of all final goods and services produced by a country’s domestically-owned firms in a given year Slide 5 Purchasing Power Parity Purchasing power parity: the number of units of a country’s currency required to buy the same amount of goods and services in the domestic market that one unit of income would buy in another country. Purchasing power parity [PPP] is estimated by calculating the value of a universal “basket of goods” that can be purchased with one unit of a country’s currency. Slide 6 The Human Development Index Is designed to capture long-term progress rather than short-term changes Measures longevity, knowledge (adult literacy rates), and standards of living Combines indicators of real purchasing power, education, and health The human development index provides a more comprehensive measure that incorporates both economic and social variables. Slide 7 Second-order Indicators of Economic Development and Potential Inflation Unemployment rate Debt Internal external Income distribution Poverty rate Balance of payments The Consumer Price Index (CIP) measures the average change in consumer prices over time in a fixed market basket of goods and services; the misery index represents the sum of a country’s inflation and unemployment rates. Slide 8 The Balance of Payments reports the total of all money flowing into a country less all money flowing out of that country to any other country during a given period of time records a country’s international transactions amongst companies, governments, and/or individuals during a given period of time The Balance of Payments [BOP] is officially known as the Statement of International Transactions. Slide 9 The Balance of Payments: Key Components Current Account Value of merchandise exports and imports Value of services exports and imports Value of income receipts and payments Net value of unilateral transfers Capital Account Value of capital inflows and outflows Value of financial inflows and outflows Net change in official reserve assets Slide 10 Surpluses and Deficits A trade surplus indicates that the value of exports exceeds the value of imports. A trade deficit indicates that the value of imports exceeds the value of exports. Trends in balance of payments data can reveal important strategic implications with respect to a country’s economic environ- ment and potential economic policies. Slide 11 Economic System Defined Economic system: the set of structures and processes that guides the allocation of scarce resources and shapes the conduct of business activities in a nation Spectrum of Economic Systems Centrally-planned Free-market N. Korea China Brazil Japan USA Cuba Russia India Germany Canada Vietnam S. Korea France UK Slide 12 Types of Economic Systems Market Economy: a free-market (capitalistic) economy built upon the private ownership and control of the factors of production Command Economy: a centrally-planned economy built upon government ownership and control of the factors of production Mixed Economy: an economy in which economic decisions are largely market-driven and ownership is largely private, but significant government intervention is still evident Slide 13 Fig. 4.3: Relationships between the Control of Economic Activity and the Ownership of Production Factors Slide 14 The Economic Freedom Index approximates the extent to which a government intervenes in the areas of free choice, free enterprise, and market-driven prices for reasons that go beyond basic national needs classifies countries as: -free -mostly free -mostly unfree -repressed Slide 15
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Slide 1International Business Chapter Four The Economic EnvironmentSlide 2Introduction All countries differ in terms of: -levels of economic development -economic performance -economic potential A firm’s managers must understand the economic environments of those countries in which it operates, as well as those of countries in which it does not, in order to predict how trends and events the world over will likely affect firm performance.Slide 3Factor Conditions Factor conditions: a nation’s inputs into the production process, such as human, physical, knowledge, and capital resources and infrastructure Not only is it difficult to specify a definitive set of economic indicators that precisely assess the performance and potential of a nation’s economy, but it is also difficult to understand the systematic relationship of one variable to another.Slide 4Gross National Income Gross national income (GNI): the market value of all final goods and services produced by a country’s domestically-owned firms in a given yearSlide 5Purchasing Power Parity Purchasing power parity: the number of units of a country’s currency required to buy the same amount of goods and services in the domestic market that one unit of income would buy in another country. Purchasing power parity [PPP] is estimated by calculating the value of a universal “basket of goods” that can be purchased with one unit of a country’s currency.
Transcript of International Business
Slide 1International Business Chapter Four The Economic EnvironmentSlide 2Introduction All countries differ in terms of: -levels of economic development -economic performance -economic potential A firms managers must understand the economic environments of those countries in which it operates, as well as those of countries in which it does not, in order to predict how trends and events the world over will likely affect firm performance.Slide 3Factor Conditions Factor conditions: a nations inputs into the production process, such as human, physical, knowledge, and capital resources and infrastructure Not only is it difficult to specify a definitive set of economic indicators that precisely assess the performance and potential of a nations economy, but it is also difficult to understand the systematic relationship of one variable to another.Slide 4Gross National Income Gross national income (GNI): the market value of all final goods and services produced by a countrys domestically-owned firms in a given yearSlide 5Purchasing Power Parity Purchasing power parity: the number of units of a countrys currency required to buy the same amount of goods and services in the domestic market that one unit of income would buy in another country. Purchasing power parity [PPP] is estimated by calculating the value of a universal basket of goods that can be purchased with one unit of a countrys currency.Slide 6The Human Development Index Is designed to capture long-term progress rather than short-term changes Measures longevity, knowledge (adult literacy rates), and standards of living Combines indicators of real purchasing power, education, and health The human development index provides a more comprehensive measure that incorporates both economic and social variables.Slide 7Second-order Indicators of Economic Development and Potential Inflation Unemployment rate Debt Internal external Income distribution Poverty rate Balance of payments The Consumer Price Index (CIP) measures the average change in consumer prices over time in a fixed market basket of goods and services; the misery index represents the sum of a countrys inflation and unemployment rates.Slide 8The Balance of Payments reports the total of all money flowing into a country less all money flowing out of that country to any other country during a given period of time records a countrys international transactions amongst companies, governments, and/or individuals during a given period of time The Balance of Payments [BOP] is officially known as the Statement of International Transactions.Slide 9The Balance of Payments: Key Components Current Account Value of merchandise exports and imports Value of services exports and imports Value of income receipts and payments Net value of unilateral transfers Capital Account Value of capital inflows and outflows Value of financial inflows and outflows Net change in official reserve assetsSlide 10Surpluses and Deficits A trade surplus indicates that the value of exports exceeds the value of imports. A trade deficit indicates that the value of imports exceeds the value of exports. Trends in balance of payments data can reveal important strategic implications with respect to a countrys economic environ- ment and potential economic policies.Slide 11Economic System Defined Economic system: the set of structures and processes that guides the allocation of scarce resources and shapes the conduct of business activities in a nation Spectrum of Economic Systems Centrally-planned Free-market N. Korea China Brazil Japan USA Cuba Russia India Germany Canada Vietnam S. Korea France UKSlide 12Types of Economic Systems Market Economy: a free-market (capitalistic) economy built upon the private ownership and control of the factors of production Command Economy: a centrally-planned economy built upon government ownership and control of the factors of production Mixed Economy: an economy in which economic decisions are largely market-driven and ownership is largely private, but significant government intervention is still evidentSlide 13Fig. 4.3: Relationships between the Control of Economic Activity and the Ownership of Production FactorsSlide 14The Economic Freedom Index approximates the extent to which a government intervenes in the areas of free choice, free enterprise, and market-driven prices for reasons that go beyond basic national needs classifies countries as: -free -mostly free -mostly unfree -repressedSlide 15The Economic Freedom Index: Determining Factors Trade policy The fiscal burden of the government The extent and nature of government intervention Monetary policy Capital flows and investment Banking and financial activities Wage and price levels Property rights Other government regulation Informal market activitiesSlide 16Economic Transition The shift from a command or mixed economy to a freer market economy largely depends on a governments ability to: -dismantle features such as central planning -create features such as consumer sovereignty. The success of the transition process depends upon the governments ability to liberalize economic activity, to reform business practices, and to establish legal and institutional frameworks.Slide 17Policies That Shape the Economic Transition Process Privatization: the sale and/or legal transfer of government-owned resources to private individuals and/or entities Deregulation: the relaxation or removal of restrictions on the free operation of markets and business practices Property rights: the protection of real (tangible) and intellectual (intangible) property [continued]Slide 18Fiscal and monetary reform: the reliance upon market-oriented instruments to achieve macroeconomic stabilization, the setting of strict budgetary limits, and the use of market-based policies to manage the money supply Antitrust legislation: laws designed to maintain and promote market competition, i.e., to prohibit the anticompetitive behavior of monopoliesSlide 19Implications/Conclusions The benefits of doing business in a given country are directly influenced by the size of the market, the wealth of consumers, and the openness, the stability, and the growth potential of the economy. [continued]Slide 20The power of economic analysis is a function of identifying the best possible indicators and then understanding how they work both in isolation and interactively. The type of economic system is a strong predictor of a nations present economic performance and its future economic prospects.
