Economics and Emerging Markets Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

International Business 5e Chapter Discuss the decline of centrally planned economic systems Describe mixed economies and privatization Explain how a market economy functions and identify its primary features Identify ways to measure levels of development Discuss economic transition and the remaining obstacles for companies Chapter Preview

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter Economic Systems Centrally Planned Market Mostly private (individual or business) ownership of economic resources Government and private ownership of economic resoures split rather evenly Government ownership of economic resources and state planning Mixed

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter Centrally Planned Economy Government owns most land, factories, and other economic resources and plans nearly all economic activity Asia Central Europe Eastern Europe Latin America Russia (1917) China (1949) Cuba (1959)  Welfare of the group is paramount  Economic and social equality is the goal  “Communist” system is needed

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter Decline of Central Planning Central planning failed to:  Create economic value  Provide incentives  Achieve rapid growth  Satisfy consumer needs

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter Focus on China Socialism with Chinese characteristics: Communist after civil war ended in 1949 Agricultural reforms began in 1979 Township and Village Enterprises legal in 1984 Aggressive reform since that time Challenges ahead: Political problems and social unrest Unemployment and migrant labor Eventual(?) reunification with Taiwan Advanced entrepreneurial and management skills

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter Mixed Economy Noble goals:  Low unemployment and poverty  Steady economic growth  Equitable distribution of wealth But stagnant:  State-owned businesses uncompetitive  Prices and taxes higher, living standards mixed  Privatized state firms to boost competitiveness Government and private parties share ownership of land, factories, and other economic resources rather evenly

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter Private parties (individuals or businesses) own vast majority of land, factories, and other economic resources Demand Quantity of a good or service that buyers are willing to purchase at a specific selling price Market Economy Supply Quantity of a good or service that producers are willing to provide at a specific selling price

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter Laissez-Faire Economics Less government interference in commerce Free choice Consumers choose freely from alternative purchase options Free enterprise Firms decide which products to sell and markets to enter Price flexibility Most prices follow the forces of supply and demand

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter Government’s Role in a Market Economy  Enforce antitrust laws  Preserve property rights  Provide fiscal and monetary stability  Preserve political stability

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter Enforce Antitrust Laws Encourages development of industries with as many competing businesses as market will sustain Keeps consumer prices in check Prevents growth-stunting monopolies

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter Preserve Property Rights Encourages risk-taking by people and business as claims to assets and future earnings are protected Market economy needs strong property rights Entrepreneurs start new businesses Firms create new technologies and products

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter Provide Fiscal & Monetary Stability Encourages commerce in a nation because it improves its reputation as a place to do business Fiscal policies (taxation, government spending) Monetary policies (money supply, interest rates) Reduces overall uncertainty Improves business forecasts Holds inflation and unemployment low

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter Preserve Political Stability Encourages businesses to engage in activities without fear of disrupted future operations Promotes economic growth generally Reduces worries of political risk Improves chances for business survival

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter Economic Freedom & Wealth

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter Economic Development Economic well-being of one nation’s people relative to another nation’s people  Economic output (agricultural, industrial, service)  Infrastructure (communications, transportation, power)  People (physical health, education level) Productivity is key Ratio of outputs (that are created) to inputs (resources used to create output)

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter National Production GDP is the value of goods and services that a nation produces during a one-year period (GNP adds international activities) PotentialproblemsPotentialproblems Purchasing power parity Purchasing Overlooks certain transactions Ignores economic growth rates Averages disguise regions May ignore purchasing power Relative ability of two countries’ currencies to buy the same “basket” of goods in those two countries

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter National Wealth at PPP PPP Estimate of GDP per Capita Country (U.S. $) (U.S. = 100) United States39,70039,700 Switzerland47,90034,700 Australia32,40032,400 Canada30,60031,800 United Kingdom35,60030,800 Japan36,50029,600 Czech Republic10,60018,600 Hungary10,00015,900 Mexico 6,60010,200 Turkey 4,200 7,600

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter Human Development Index

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter Classifying Countries Developed Country Emerging Market Newly Industrialized Country Developing Country Highly industrialized, highly efficient, and whose people enjoy a high quality of life Newly industrialized countries plus those with potential to be newly industrialized Recently greater national production and exports from industrial operations Poor infrastructure and extremely low personal income

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter Economic Transition Reforms include:  Reduce budget deficits and expand credit  Allow the “price mechanism” to determine prices and economic activity  Legalize private firms and privatize state-owned assets within a property rights framework  Remove barriers to trade and investment and eliminate currency controls  Ensure social-welfare system to ease transition Fundamental reorganization of an economy and the creation of new free-market institutions

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter Obstacles to Transition Cultural differences Environmental degradation Capital shortage Lack of managerial expertise

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter Focus on Russia  Operated under a staunchly communist system for about 75 years  Underwent a rough transition of simultaneous economic and political reform  But the economy is improving and foreign investment is returning  Challenges include developing managerial talent and fostering political and social stability

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter Discuss the decline of centrally planned economic systems Describe mixed economies and privatization Explain how a market economy functions and identify its primary features Identify ways to measure levels of development Discuss economic transition and the remaining obstacles to companies Chapter Review

Economics and Emerging Markets Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

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