Economic and Socioeconomic Forces McGraw-Hill/Irwin International Business, 11/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. chapter eight

8-3 Learning Objectives  State the purpose of economic analysis  Identify different categories based on levels of national economic development and the common characteristics of developing nations  Recognize the economic and socioeconomic dimensions of the economy and different indicators used to assess them  Discuss the importance of a nation’s consumption patterns and the significance of purchasing power parity

8-4 Learning Objectives  Discuss the new definition of economic development, which includes more than economic growth  Explain the degree to which labor costs can vary from country to country  Discuss the significance for businesspeople of the large foreign debts of some nations

8-5 International Economic Analyses (Table 8.1)  Economic Analysis  When a firm enters overseas markets, economic analyses become more complex

8-6 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

8-7 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

8-8 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 middle- income economies such as Brazil, Mexico, Malaysia, Chile, and Thailand

8-9 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

8-10 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

8-11 Underground economy –That part of a nation’s income not measured by official statistics unreporting underreporting

8-12 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

8-13 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

8-14 Dimensions of the Economy  Private Consumption  Disposable income  after-tax personal income  Discretionary income  income left after paying taxes and making essential purchases

8-15 Private Consumption Based on Purchasing Power Parity

8-16 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

8-17 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

8-18 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

8-19 Major International Debtors

8-20 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

8-21 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

8-22 Population Growth

8-23 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

8-24 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

8-25 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

8-26 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

8-27 Socioeconomic Dimensions Population Distribution –A measure of how the inhabitants are distributed over a nation’s area –Changing population distribution: rural- to-urban shift

8-28 Rural-to-Urban Shift (Table 8.8)

8-29 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

8-30 Population Distribution