Transcript Chapter 08
This chapter covers:
8
•The purpose of
economic analysis
•Economic and socioeconomic dimensions
Economic and
Socioeconomic Forces
•Consumption
patterns and
purchasing power
•Labor costs
•The significance of
foreign debt
•Birthrate trends and
its implications
•Indicative plans
International Business
by Ball, McCulloch, Frantz,
Geringer, and Minor
McGraw-Hill/Irwin
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Objectives
Understand the purpose of economic analysis
Recognize the economic and socioeconomic dimensions of the
economy
Understand 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 Analyses
Economic Analysis
When a firm enters
overseas markets,
economic analyses
become more
complex
Should provide data
on both actual and
prospective markets
8-3
International Economic
Analysis
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
8-4
Dimensions of the Economy
Important Economic
Indicators
Gross National Product
Distribution of income
Private consumption
expenditures
Personal ownership of
goods
Private investment
Unit labor costs
Exchange rates
Inflation rates
Interest rates
8-5
Dimensions of the Economy
Gross Domestic Product (GDP)
Or Gross National Income
(GNI)
8-6
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
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 Economy
Income Distribution
A measure of how a nation’s income is apportioned among
its people
Data gathered by the World Bank
Published 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
8-7
Dimensions 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
8-8
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.
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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 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 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
8-11
Socioeconomic 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 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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Population Growth
Figure 8.3
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Forces 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 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 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.
8-17
By the year 2025, Japan
will have twice as many
old people as it has
children.
Socioeconomic 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.
Rural-to-Urban Shift
Table 8.6
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Socioeconomic Dimensions
8-20
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.
United States R&D % of GDP
8-23
Consumption Groups in Hungary
8-24
Georgia State Average Annual Pay
8-25
10 Places With the Lowest Birth Rates
Worldwide
Average number of children per woman, 2000-2005
Hong Kong Special
Administrative Region
1.00
Latvia
1.10
Bulgaria
1.10
Macao Special
Adminstrative Region
1.10
Slovenia
1.14
Russian Federation
1.14
1.15
Spain
Ukraine
1.15
Armenia
1.15
Czech Republic
Source: United Nations, World Population Prospects: The 2002 Revision (medium scenario), 2003.
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1.16