1. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Part Two Comparative Environmental Frameworks International Business Environments and Operations 4-1

2. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-2 Chapter Four The Economic Environments Facing Businesses

3. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-3 Chapter Objectives To understand the importance of economic analysis To identify the major dimensions of international economic analysis To compare and contrast macroeconomic indicators To profile the characteristics of the types of economic systems To discuss the idea of economic freedom To profile the drivers of economic transition

4. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-4 Importance of Economic Environments Managers study economic environments to estimate how market trends and government policy influence the performance of their companies. A country’s economic policies are a leading indicator of government’s goals and its planned use of economic tools and market reforms. Economic development directly impacts citizens, managers, companies, policymakers, and institutions.

5. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-5 International Economic Analysis Three conditions hamper the development of a universal scheme:  Difficulty in choosing a single set of indicators to estimate the performance and potential of a country’s economy.  Today’s set of perfect measures may prove imperfect tomorrow.  Interdependencies complicate interpreting the relationship among elements of the economic environment.

6. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-6 Economic Factors Affecting International Business Operations

7. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-7 Elements of the Economic Environment Gross Domestic Product (GDP): C+I+G+(X-M) Gross National Income (GNI): GDP plus the international production activities of national companies Gross National Product (GNP): GDP plus the income earned by a country’s citizens abroad, minus the income earned by foreigners from domestic production. http://www.economicshelp.org/blog/3491/economics/difference- between-gnp-gdp-and-gni/

8. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-8 Improving the Power of GNI Per Capita Conversion Rate of Change Purchasing Power Parity  Penn World Tables (http://pwt.econ.upenn.edu/php_site/pwt_index.php) Degree of Human Development  Human Dev. Report (http://hdr.undp.org/en/) Green Measures  GNH (http://www.grossnationalhappiness.com/articles/)  GPI (http://gpiatlantic.org/gpi.htm)  CIW (http://ciw.ca/en/)  Happy Planet Index (http://www.happyplanetindex.org/)

9. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-9 countrytcgdpcgdpcccgcicgnp HDI rank Australia1011392.4547565.8460.589.3230.5597.39 2 Brazil2090966.4810521.1774.099.3016.6897.96 85 Canada1340246.2240022.8871.019.2521.4698.60 6 Chile227268.5313689.2364.255.0122.9993.75 44 China_110739325.578113.7732.2115.7144.30100.87 101 China_211342464.268569.4639.6315.6537.18100.87 101 Cuba141261.0212714.7668.9928.103.1198.50 51 France2215112.5134385.4871.9411.3418.66100.82 20 Germany2964652.1236225.8664.9312.2317.87101.41 9 Hong Kong273604.0938781.5959.943.2929.7298.33 13 India4150974.103588.0260.7012.9130.8999.47 134 Japan4449224.4235011.4865.9212.2221.58103.14 12 Korea1293975.8826674.9756.378.2331.50100.53 15 Mexico1433236.1012887.4277.912.9620.5798.34 57 Norway263341.0956498.8454.079.2121.8598.58 1 Russia2199201.7115703.9869.669.2514.0296.80 66 Singapore238632.6751230.7234.5510.9834.9598.32 26 South Africa424160.348647.1670.806.3423.7097.78 123 United Kingdom2293945.1037000.9078.989.1314.27102.00 28 USA14003780.0045613.8878.537.8316.3999.24 4

10. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall Is Growth Good? In class debate In English, each person should write down 3 good things about economic growth In English, each person should write down 3 bad things about economic growth 2 groups – 1 for growth, 1 against  3 things either for or against I’ll pick 5 people for the debate from each side  3 people, each takes one idea  1 person argue against other side  1 person summary 4-10

11. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-11 Other Economic Data to Look At

12. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-12 Inflation Cost of Living Implications of Chronic Inflation Price Indexes & Measurement Problems Deflation

13. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-13 Unemployment Problems in Measuring Variation in Public Support The Pension Problem

14. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-14 Debt Internal Debt: Portion of the government debt that is denominated in the country’s own currency and held by domestic residents External Debt: Debt owed to foreign creditors and denominated in foreign currency. Other Debt  Regional (State, Province)  Municipal  Consumer

15. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-15 Income Distribution Gini Coefficient  (0 – equal to 1 – very unequal)  Urban vs. Rural Often a big difference – higher incomes in cities  Income Inequality has been growing rather drastically

16. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-16 Poverty World Bank Definition Poverty and the Economic Environment The Potential of the Poor  Bottom of the Pyramid Phenomenon

17. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-17 Labor Costs Labor and Total Costs  For many goods and services, the cost of labor is a key element of total costs. Consequently, companies scan the world, looking for markets that offer lower-cost and high-skilled labor.

18. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-18 Productivity Productivity measures the efficiency with which products are produced.

19. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-19 Balance of Payments Current and Capital Accounts  Current Account: tracks all trade activity in merchandise  Capital Account: tracks both loans given to foreigners and loans received by citizens BOP and Economic Stability

20. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-20 Definition of Economic System A mechanism that deals with the production, distribution, and consumption of goods and services Types:  Market economy  Command economy  Mixed economy

21. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-21 The Dynamic of Economic Transitions The Allure of Market Economies Belief in Free Markets Economic Freedom  http://www.heritage.org/index/ranking Extremely pro free-market group

22. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-22 Dimensions of The Economic Freedom Index Business freedom Trade freedom Monetary freedom Freedom from government Fiscal freedom Property rights Investment freedom Financial freedom Freedom from corruption Labor freedom

23. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-23

24. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-24 Future: Economic Freedom Pushback and the Rise of the Mixed Economy Return of the Mixed Economy Free-Market Strike Back The Battle Engaged

25. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-25 Means of Economic Transition Liberalizing economic activity Reforming business activity Establishing legal and institutional frameworks Success is linked to how well the government deals with:  Privatization  Regulation  Property right protection  Fiscal and monetary reform  Antitrust legislation

26. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall A Short Project Here’s an English website about Wuhan that addresses the last 3 chapters  http://bit.ly/KDlPM7  (http://english.wh.gov.cn/publish/english/category/72/ 1201204161612120002.html) It is designed to attract foreign business In your opinion, what is good, what is bad, and what would you change? 3 pages in English 4-26

27. Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 4-27 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America