Transcript Document
chapter eight
Economic and Socioeconomic
Forces
McGraw-Hill/Irwin
International Business, 11/e
Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
Understand the purpose of economic analysis
Identify the categories used to describe levels of
economic development
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
8-3
Learning Objectives
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
Discuss the new definition of economic
development
8-4
International Economic Analyses
(Table 8.1)
Economic Analysis
When a firm enters overseas markets,
economic analyses become more complex
8-5
International Economic
Analysis
Sources for Economic Information
The Commercial officers in embassies
The World Bank
The United Nations
The International Monetary Fund
The Organization for Economic
Cooperation and Development
8-6
Levels of Economic Development
• Developed
– A classification for all industrialized nations,
which are the most technically developed
• Developing
– A classification for lower income nations,
which are less technically developed
8-7
Levels of Economic Development
• Newly industrialized economies (NIEs)
– The fast-growing upper-middle-income and
high income economies of South Korea,
Taiwan, Hong Kong, and Singapore
• Newly industrializing countries (NICs)
– The four Asian Tigers and the middleincome economies such as Brazil, Mexico,
Malaysia, Chile, and Thailand
8-8
Dimensions of the Economy
Important Economic Indicators
Gross National Income (GNI)
GNI/capita
Income Distribution
Private consumption
Unit labor costs
Exchange rates
Inflation rates
Interest rates
8-9
Dimensions of the Economy
• Gross National Income (GNI)
– The measure of the income generated by
a nation’s residents from international
and domestic activity
– Preferred over GDP
• GNI/Capita
– Used to compare countries with respect
to the well-being of their citizens and to
assess market or investment potential
8-10
Underground economy
• Underground economy
– That part of a nation’s income not measured
by official statistics
• unreporting
• underreporting
8-11
Purchasing Power Parity
• Purchasing Power Parity
– The number of units of a currency required
to buy the same amount of goods and
services in a domestic market that $1.00
would buy in the U.S.
– Helps to make comparisons possible across
economies
8-12
Dimensions of the Economy
Income Distribution
A measure of how a nation’s income is
apportioned among its people
Reported as the percentage of income
received by population quintiles
Data gathered by World Bank
Income more evenly distributed in richer
nations
Income redistribution proceeds slowly
Income inequality increases in early stages
of development but reverses in later stages
8-13
Dimensions of the Economy
Private Consumption
Disposable income
after-tax personal income
Discretionary income
income left after paying taxes and
making essential purchases
8-14
Private Consumption Based on
Purchasing Power Parity
8-15
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
8-16
Dimensions of the Economy
• Reasons for relative changes in
labor costs
– Compensation
– Productivity
– Exchange rates
• International firms must keep close
watch on labor rates around the
world
8-17
Dimensions of the Economy
• Large international debts of middle- and
low-income nations affect multinational
firms
– When foreign exchange must be used for loan
repayment, import of components used in
local production is reduced
– Local industries must manufacture these
components or production must stop
8-18
Major International Debtors
8-19
Socioeconomic Dimensions
• Total Population
– Most general indicator of potential market
size
– Population size, used alone, is not good
indicator of economic strength and market
potential
8-20
Socioeconomic Dimensions
• Age Distribution
– Developing countries have more
youthful populations than do industrial
countries
– Birthrates decreasing worldwide
– Population of developing countries
accounts for over three-quarters of
world’s population
8-21
Population Growth
8-22
Forces Reducing Birthrates
• Government supported family planning
programs
• Improved levels of health, education along
with enhanced status for women
• More even distribution of income
• Greater degree of urbanization
8-23
Concern: Birthrate Decline
• Concern in Developed Nations: Europe
• An increasing number of young
Europeans not marrying
• Marriages are later, with fewer children
• By 2025, the present 9 percent
unemployment rate in the EU will be
replaced by a shortage of workers
8-24
Concern: Birthrate Decline
• Concern in Developed Nations: Japan
– By 2025, Japan’s population aged 65 and
older will make up 26.8 percent of total
population
– By 2025, Japan will have twice as many
old people as children
8-25
Socioeconomic Dimensions
• Population Density
– A measure of the number of inhabitants
per area unit
– product distribution and
communications simpler and cheaper in
densely populated countries
8-26
Socioeconomic Dimensions
• Population Distribution
– A measure of how the inhabitants are
distributed over a nation’s area
– Changing population distribution: ruralto-urban shift
8-27
Rural-to-Urban Shift
(Table 8.8)
8-28
Socioeconomic Dimensions
• Increase in the number of
working women
– May require marketers to alter
promotional mix
– Results in larger family incomes
– Results in a greater market for
convenience goods
8-29
Population Distribution
8-30