International Business

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International Business

• Chapter Four
• The Economic Environment Facing Business

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Elements of the Economic Environment

• Gross Domestic Product and Gross National Income
• GDP/GNI growth
• Per capita income
• Purchasing Power Parity
• Human Development (HDI of UNDP)
• Green measures of development

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Features of an Economy

• Implication of the following factors for
  managers
• Inflation/deflation price index and cost of
  living,
• Unemployment civilian labor force, labor
  regulations
• Debt internal and external debt
• Income distribution/inequality globally, within
  the country, GINI index, urban vs. rural
• Poverty definition, do poor have any potential?
• Labor costs
• Productivity
• Balance of Payments

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Purchasing Power Parity

• PPP is the number of units of a countrys
  currency required to buy the same amounts of
  goods and services in the domestic market that 1
  would buy in the United States.
• The relative price index makes the difference.
  Example The price of tomato in USA and India is
  2.00 and 0.20 respectively. If an Indian earns
  3000 per year, how much an American will have to
  earn to buy the same amount of tomato?

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Human Development Index and Inequality

• The human development index (HDI) provides a more
  comprehensive measure that incorporates both
  economic and social variables. It is designed to
  capture long-term progress rather than short-term
  changes.
• HDI is a composite given by income, education and
  life expectancy at birth.
• Inequality in the world GINI index, ratio
  between top 20 and bottom 20.

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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 countrys international transactions
  amongst companies, governments, and/or
  individuals
• Concept of trade surplus and trade deficit

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Types of Economic Systems

• 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
• 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

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Evaluating Market, Mixed and Command Economy
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Economic Freedom

• Refers to the extent of government control
  exercised on the economic activities of the
  people. Heritage Foundation Measures it on the
  basis of the following 10 criteria.

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World Economy in Transition

• Role of state in managing the economy
• Economies are shifting from a command or mixed
  economy to a freer market economy
• Rise of Emerging Markets are noticeable (G20 over
  G8)
• Will BRIC nations control the future?

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Chapter 4 Discussion Questions

• Discuss the Features of an Economy and their
  implication for an international business
  manager.
• Explain the Balance of Payments account with its
  four subheads. Why is it important to in
  international business manager?
• What are the three types of economic systems? How
  can we evaluate them? Explain.
• What changes are evident in the world economy
  today? Explain this in view of the rise of the
  emerging nations, BRIC, and G20.

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