Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three chapter seven Concept Preview After reading this chapter, you should be able to: Economic and Socioeconomic Forces and Their Relevance for International Businesspeople Economic and Socioeconomic Forces and Their Relevance for International Businesspeople 1. understand the purpose of economic analysis. 2. understand the importance of a country’s consumption patterns and of purchasing power parity. 3. identify the factors which cause changes in hourly wage rates expressed in dollars. 4. understand the significance of the large foreign debt of some nations.

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three chapter seven Concept Preview continued After reading this chapter, you should be able to: Economic and Socioeconomic Forces and Their Relevance for International Businesspeople Economic and Socioeconomic Forces and Their Relevance for International Businesspeople 5. ascertain the reasons for, and implications of, the worldwide downward trend in birthrates. 6. understand indicative plans and their importance to business people.

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three 7-3 Economic Analysis  Complexity because there are multiple economies to consider  Interaction of these economies  Impact on business

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three Impact of Economic Forecast on firm’s functional areas Figure Marketing Manager Effect on sales? Marketing Manager Effect on sales? Personnel Manager 1. Effect on wage rates? 2. Effect on labor supply? 3. Effect on union contract negotiations? Personnel Manager 1. Effect on wage rates? 2. Effect on labor supply? 3. Effect on union contract negotiations? Production Manager 1. Effect of sales change on production machinery requirements? 2. Effect of sales change on labor requirements? 3. Effect of sales change on raw material requirements? Production Manager 1. Effect of sales change on production machinery requirements? 2. Effect of sales change on labor requirements? 3. Effect of sales change on raw material requirements? Financial Manager Effect of sales change on cash inflow? Financial Manager Effect of sales change on cash inflow? Purchasing Manager Effect on workload? Financial Manager Effect on cash outflow? Personnel Manager Effect on workload? Financial Manager Effect on cash outflow? Purchasing Manager Effect on workload? Financial Manager Effect on cash outflow? Economic Forecast Increase in employment Economic Forecast Increase in employment

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three 7-5 Dimensions of the Economy  GNP (Gross National Product)  the total value of all goods and services produced  values used to measure an economy size  GDP (Gross Domestic Product)  GNP less (-) net factor income from abroad  GNP/capita and GDP/capita  used to compare purchasing power  Income distribution  Private consumption  Investment  Labor compensation rates  Interest rates  Balance of payments  Inflation rates

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three 7-6 Annual Rates of Inflation for selected countries Country1995 Georgia2,280% Turkmenistan1,167 Ukraine1,041 Brazil 965 Angola 775 Russian Federation 517 Zambia 108 Nicaragua 98 Peru 62 Uruguay 56 Source: World Development Indicators 1997 (Washington D.C.: World Bank, 1997) pp Table 7.1

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three 7-7 Figure 7.2 Five-year Real Projected Growth in GDP cumulative percentage change * MercosurEUNAFTAAsiaSouth AmericaAfricaOceania *EU—European Union; NAFTA—North American Free Trade Agreement. Figure 7.2 serves only as an example.

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three Percentage Share of Income or Consumption Selected Countries 7-8 Table 7.2 Lowest 2020—4040—6060—80Highest 20Highest 10 CountryPercentPercentPercentPercentPercentPercent Australia (85)4.4%11.1%17.5%24.8%42.2%25.8% Czech Rep. (93) France (89) India (92)* Ivory Coast (88)* Japan (79) Norway (79) Russian Fed. (88)* Sweden United States (85) Venezuela Note: Numbers in parentheses indicate year of study. No superscript: Data refer to household income and percentiles of households. *Data refer to per capita expenditure and percentiles of population. Source: World Development Report 1997 (Washington D.C.: World Bank 1991), Table 2.6, pp

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three 7-9 Income Distribution  A measure of how a nation’s income is apportioned among its people  Commonly reported as a percentage of income received by population quintiles  Use by business people  confirm the belief that, generally, income is more evenly distributed in the advanced nations  income redistribution occurs very slowly over time  income equality increases in the early stages of development, with a reversal of this tendency in the later stages

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three 7-10 Private Consumption  Disposable income  after-tax personal income  Discretionary income  the amount of income left after paying taxes and making essential purchases  Power purchasing parity  consumer expenditure comparison that eliminates differences in relative prices

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three 7-11 Table 7.3-I Private Consumption Based on Purchasing Power Parity (Top 10 Sample)

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three 7-12 Table 7.3-II Private Consumption Based on Purchasing Power Parity (Top 10 Sample)

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three 7-13 Dimensions of the Economy  Gross domestic investment  the part of national income allocated to increasing a nation’s productive capacity  Private and government consumption  private spending is increasing  government spending is decreasing

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three Labor Compensation Costs, * 7-14 Table 7.6 *Dollar conversions are at average annual exchange rates. **Former West Germany. Source: Bureau of Labor, ftp:// /pub/news.release/ichcc.br.

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three Change in Present Value ofTotal Debt Service Total Externaldebt since Debt as a (%) of as a (%) of Debt ($ billions)1980 Export Revenue Export Revenue Country (percent) Mexico$165.7 $ %163.8%259.2%24.2%44.4% Brazil Russian Fed n.a. n.a. n.a. n.a.6.6 n.a. China , Indonesia India Argentina Turkey n.a. = not available Source: World Development Indicators 1997, pp , ; and World Development Report 1993, pp Major International Debtors 7-15 Table 7.7

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three 7-16 Socioeconomic Dimensions  Total population  general indicator of market size  Age distribution Average Annual Population Increases Type Economies Low-income 2.2 %1.9 %1.5 % Middle-income High-income Source: World Development Report 1997, (Washington D.C.; World Bank, 1997) p. 36.  Population density  Divorce rate  Number of working women

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three Population Growth Countries with over 100 million inhabitants in the year 2000 (millions of inhabitants) 7-17 Figure 7.5

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three Contraceptive Prevalence Rate for selected countries by rural/urban residence 7-18 Figure 7.6a Percent of married women IndonesiaBangladeshTurkeyCotê d’IvoireZimbabweBolivia Source: “Contraceptive Prevalence,” World Population Profile: 1996, (December 5, 1997).

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three 7-19 Figure 7.6b Percent of married women Bangladesh Philippines Morocco Cotê d’Ivoire Zimbabwe Bolivia Source: “Contraceptive Prevalence,” World Population Profile: 1996, (December 5, 1997). Contraceptive Prevalence Rate for selected countries by rural/urban residence

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three Concern in Developed Nations  Declining birth rates are causing concern in the governments of industrialized nations  Fertility rates are below the replacement number of 2.1 children  Only U.S. and New Zealand have that rate  Increasing number of young Europeans are not marrying  Those who do, marry later and have fewer children 7-20

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three Percentages of Elderly (over 65) in Population 7-21 Figure 7.7a Sources: Labor Force Statistics (OECD, Paris), 1997; and World Development Report 1993 (World Bank, Washington D.C., p. 289.

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three Dependency Ratio per 100 People of Working Age 7-22 Figure 7.7b Sources: World Development Indicators 1997 (World Bank, Washington D.C.), p. 34; and World Development Report 1996 (World Bank, Washington D.C.) pp

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section three Percentages of Populations in Urban Areas Percentage Increase Low-income countries 18 %29 %61 % Middle-income countries High-income countries Rural-to-Urban Shift 7-23 Table 7.8 Population Density & Distribution  Density  measure of the number of inhabitants per area unit (per square kilometer or per sq.. mile)  Distribution  how inhabitants are distributed over a nation’s area  Rural to urban shift  movement of a nation’s population from rural areas to cities Sources: World Development Indicators 1997 (World Bank, Washington D.C.), p. 116.