1. Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. The Economic Environment Chapter 4

2. Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. The World Economic Pyramid *Bases on Purchasing power parity in U.S. $. SOURCE: U.N. World Development Reports Less Than $1,500 $1,500-$20,000 More Than $20,000 Annual per Capita Income*Tiers Population in Millions 75-100 1,500-1,750 4,000

3. Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Major Industrialized Countries of the World

4. Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Market Characteristics Population demographics –Age distribution, life expectancies, household size, urbanization. Income –Distribution of low, medium, and high incomes. –Gross domestic product per capita. –Purchasing power parity. Consumption patterns –Income spent on necessities and luxuries. –Product saturation or diffusion. –Product form differences.

5. Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Market Characteristics (continued) Availability and quality of infrastructure –Rail traffic networks for distribution capabilities. –Communication systems for marketing. –Energy (electrical and fuel) consumption. Foreign involvement in the economy –Degree of foreign direct investment in country or in a specific industry. –Rules governing foreign investment. Impact of the economic environment on social development –Urbanization, life expectancy, literacy rates, etc. –Physical Quality of Life Index (PQLI).

6. Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Regional Economic Integration Levels of economic integration –Free Trade Area Least restrictive. Goods and services are freely trades among all members. Each country maintains its own trade barriers for nonmembers. –Customs Union Members establish a common trade policy with respect to nonmembers. –Common Market Factors of production mobility is emphasized. A common external tariff is adopted. –Economic Union Integration and harmonization of economic and monetary policies is achieved leading to political union.

7. Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Free Trade Area Eliminates tariff and quota barriers among member countries. Each country is free to set its own tariff and quota barriers against nonmember countries. Can be formed for certain classes of goods or services only.

8. Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Customs Union Area Tariff and quota barriers among member countries are eliminated. Member countries establish common tariff and trade barriers against nonmember countries. Tariff revenues are shared among members according to a prescribed formula.

9. Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Common Market Area No trade barriers among member nations. No restriction on the movement of labor, capital, or technology across borders. Member countries establish common tariff and trade barriers against nonmember countries.

10. Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Economic Union Has all the characteristics of a common market. Harmonizes taxation. Harmonizes government spending. Harmonizes monetary policies. Establishes a common currency.

11. Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. European Integration Expected economic growth from: –Eliminating transaction costs. –Economies of scale will be attained as production becomes concentrated. –More intense competition from EU companies. Operations from one country can be freely expanded to other countries. Products can be freely sold across borders to millions of new consumers. There is a “Fortress Europe” fear.

12. Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. North America Integration Is for purely economic reasons. There are no constituencies for political integration. NAFTA. “Maquiladoras”.

13. Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. NAFTA The North American Free Trade Agreement (NAFTA) created the world’s largest free market. –390 million U.S., Canadian, and Mexican consumers and a total output of $10 trillion.

14. Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Free Trade Area of the Americas An agreement to form a regional trading zone stretching from Point Barrow, Alaska to Patagonia, Argentina.  

15. Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Integration in Asia Association of Southeast Asian Nations (ASEAN) East Asia Economic Group Asia-Pacific Economic Cooperation (APEC) South Asian Association for Regional Cooperation (SAARC)

16. Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Integration in Africa and the Middle East Economic Community of West African States (ECOWAS) Afro-Malagasy Economic Union East Africa Customs Union West African Economic Community Maghreb Economic Community Gulf Cooperation Council (GCC)