8 Economic and Socioeconomic Forces International Business by Ball, McCulloch, Frantz, Geringer, and...
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Transcript of 8 Economic and Socioeconomic Forces International Business by Ball, McCulloch, Frantz, Geringer, and...
8
Economic andEconomic andSocioeconomic ForcesSocioeconomic Forces
International Businessby Ball, McCulloch, Frantz,
Geringer, and Minor McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
This chapter covers:
•The purpose of economic analysis
•Economic and socio-economic dimensions
•Consumption patterns and purchasing power
•Labor costs
•The significance of foreign debt
•Birthrate trends and its implications
•Indicative plans
Chapter ObjectivesChapter Objectives
Understand the purpose of economic analysisRecognize the economic and socioeconomic
dimensions of the economyUnderstand the importance of a nation’s
consumption patterns and the significance of purchasing power parity
Understand the degree to which labor costs can vary from country to country
Understand the significance for businesspeople of the large foreign debts of some nations
Ascertain the reasons for the worldwide downward trend in birthrates and its implications for businesspeople
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International Economic AnalysesInternational Economic Analyses
Economic Analysis When a firm enters
overseas markets, economic analyses become more complex
Should provide data on both actual and prospective markets
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International Economic International Economic AnalysisAnalysis
Sources for Economic Information Reports from central or international
banks American chambers of commerce Commercial officers in U.S. embassies The United Nations and the World Bank The International Monetary Fund The Organization for Economic
Cooperation and Development
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Dimensions of the EconomyDimensions of the Economy
Important Economic IndicatorsGross National
ProductDistribution of incomePrivate consumption
expendituresPersonal ownership of
goodsPrivate investmentUnit labor costs Exchange rates Inflation rates Interest rates
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Dimensions of the EconomyDimensions of the Economy
Gross Domestic Product (GDP) Or Gross National Income (GNI)
The total of all goods and services produced in a country in a given year, including production by foreign firms within a country’s borders
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In order to compare the purchasing power of nations managers need to know among how many people GDP is divided
GDP Or GNI/Capita Generally the higher
the value, the more advanced the economy.
Dimensions of the EconomyDimensions of the Economy
Income DistributionA measure of how a nation’s income is
apportioned among its peopleData gathered by the World BankPublished yearly in the World Development
Indicators Income is more evenly distributed in richer
nations Income redistribution proceeds very slowly Income inequality increases in early stages of
development but reverses in later stages
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Dimensions of the EconomyDimensions of the Economy
Private Consumption Disposable income
After-tax personal income
Discretionary income Disposable
income less essential purchases
Data available from UN and World Bank
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Dimensions of the EconomyDimensions 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.
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Reasons for relative changes in labor costs Compensation Productivity Exchange rates
International firms must keep a close watch on labor rates around the world
Dimensions of the EconomyDimensions of the Economy
Example of how large foreign debts affect an international firm
If a large part of the foreign exchange a nation earns cannot be used to import components used in local products, then
Local industries must manufacture the part or companies that import the part must stop production in the home country
Socioeconomic DimensionsSocioeconomic Dimensions
Total Population Most general
indicator of potential market size
First characteristic of the population that analysts examine
Population size, used alone, is not a good indicator of economic strength and market potential
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Socioeconomic DimensionsSocioeconomic Dimensions
Total Population and GNP Where GNP increases faster than the
population Probably an expanding market.
Where population increases faster than GNP Possible market contraction. This situation may suggest a potential
area of political unrest may be present. Example is Egypt
Socioeconomic DimensionsSocioeconomic Dimensions
Age Distribution Generally, because of high birth and
fertility rates Developing countries have more youthful
populations than do industrial countries Birthrates are decreasing worldwide Population of developing countries account
for over three-quarters of the world’s population
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Forces Reducing BirthratesForces Reducing Birthrates
Government supported family planning programs
Improved levels of health, education and status for women
More even distribution of income
Greater degree of urbanization
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Socioeconomic DimensionsSocioeconomic Dimensions
Concern in Developed Nations Declining birthrates are causing concern
in the governments of industrialized nations. An increasing number of young
Europeans are not marrying. Those who are marrying, do so later
and are having fewer children. By the year 2025, the present 9
percent unemployment rate in the EU will be replaced by a shortage of workers.
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Socioeconomic DimensionsSocioeconomic Dimensions
Concern in Developed Nations (Japan) By 2025, Japan’s
population age 65 and older will make up 26.8 percent of its total population.
This proportion compares to 18.5 percent of this age group in the U.S. By the year 2025,
Japan will have twice as many old people as it has children.
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Socioeconomic DimensionsSocioeconomic Dimensions Population Density
A measure of the number of inhabitants per area unit.
Densely populated countries tend to make product distribution and communications simpler. Less costly than
less densely populated countries
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Population Distribution A measure of how
the inhabitants are distributed over a nation’s area.
Changing population distribution Rural-to-urban
shift as people move to cities in search of higher wages and more conveniences.
Socioeconomic DimensionsSocioeconomic Dimensions
Increase in the number of working women May require
marketers to alter the promotional mix.
Results in larger family incomes.
Results in a greater market for convenience goods.
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1.10
1.10
1.10
1.00
1.14
1.16
1.15
1.15
1.15
1.14
Czech Republic
Armenia
Ukraine
Spain
Russian Federation
Slovenia
Macao SpecialAdminstrative Region
Bulgaria
Latvia
Hong Kong SpecialAdministrative Region
10 Places With the Lowest Birth Rates 10 Places With the Lowest Birth Rates WorldwideWorldwide
Average number of children per woman, 2000-2005
Source: United Nations, World Population Prospects: The 2002 Revision (medium scenario), 2003.
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