The Economic Environment

1
The Economic Environment
2
Pizza Hut in Brazil

• Motivation
• Large size
• 5th largest country
• 12th largest GNP-103 largest in percapita GNP
• 7th largest land mass
• Large urban concentration in Sao Paolo and Rio
• Democratic Government
• Market Economy

3
Pizza Hut

• Macro-environmental effects?
• Political
• If new democracy runs into problems--increase
  expenditures, new spiral of inflation?
• Economic
• Fiscal deficits
• Government might have to raise taxes, reduce
  expenditures
• Previous problems with inflation, weak currency
• Government might have to slow down the economy
• External debt
• Promote exports, reduce imports
• Slow privatization
• Increasing gap between rich and poort

4
ECONOMIC FORCES

• Economic systems
• General framework
• Stability
• Key macroeconomic indicators
• Factor and market conditions
• Growth
• Inflation
• Surpluses/ Deficits
• Economies in transition

5
Economic System

• Type of property ownership
• How stable is the market
• Level of economic freedom
• Trade policy, taxation, government intervention,
  monetary policy, banking, wage and price
  controls, property rights, regulation, black
  market activities
• How does the countrys government see foreign
  investment?
• Competition with domestic firms
• Partnership?
• Methods of resource allocation and control
• Existence and influence of capital markets
• Controlled by public or private sector

6
Command Economy(AKA Centrally Planned Economy)

• Sole actor governments
• Proper allocation of resources?

7
Market Economy

• Interaction between individuals and firms
• Economic freedom
• Proper allocation of resources?

8
Characteristics ofmarket economies

• Privately owned production factors
• Competitive markets
• Strong currencies
• Institutional support
• Investment opportunities for individuals
• Well-functioning infrastructure

9
Mixed Economy

• Mixture between purely market determined and
  completely centrally planned economy
• Implications?

10
Key Macroeconomic Issues

• Economic growth
• faster vs. slower growing countries
• past vs. estimated growth rate
• Inflation
• affects interest rates, exchange rates, the cot
  of living, and consumer and investor confidence
• also a source of political destabilization

11
Key Issues (cont)

• Payment imbalances
• current account
• capital account
• Privatization
• sale of state-owned assets
• various forms

12
Key Issues (cont)

• External debt
• absolute size
• of GNP or GDP
• of exports
• debt-service ratio (ratio of interest payments
  plus principal amortization to exports)