International Business

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International Business
International Business 10e Daniels/Radebaugh/Sulli
van

• Chapter Four
• The Economic Environment

2004 Prentice Hall, Inc
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Reading chapters

• Its important to do the reading before class
• You cannot assume that everything on the tests
  will be on the slides
• Everything on the tests will be
• discussed in class
• mentioned in the study guide for the test
• But you will have to study the text and your notes

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Studying cases

• You are not required to memorize any facts from
  the cases
• No facts from the cases will be on the tests
  unless I specifically tell you
• But you are expected to have read the cases and
  thought about the study question

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On tests, a question about a case will give you
the facts you need

• A multiple choice question will provide the basic
  data
• An essay will be open book
• But if you did not read before class, you are
  unlikely to absorb enough during class
  discussion to be ready

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Cases have two central roles in Business 187

• They illustrate points in the text
• They show the complexities of the real world
• Cases give you a chance to think about real
  situations
• Let you consider which of the theories in the
  text you find useful

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As you read cases, think about

• Which theories in the text are at work?
• To what extent does the case provide evidence
  that I have to go beyond the theory?

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The first 4 chapters

• Basic ideas about international business
• Culture What it is, why its crucial, how to
  develop the art of dealing with it
• The political environment Nature of the
  systems that create rules of the game
• The economic environment
• How do nations produce wealth?
• How much do they have?

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Chapter Objectives

• Learn criteria for dividing countries into
  economic categories
• Understand key measures like Gross National
  Income
• Understand economic systems
• Discuss economic issues that influence
  international business
• Assess the transition process for former command
  economies
• Daewoo case Economic development

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Economic issues thatmultinational enterprises
must grasp

• What is the size, growth potential, and stability
  of the market?
• What type of economic system does the country
  have?
• Is your firms industry in the public or private
  sector of this country?
• If public, does the government allow private
  competition?
• How does the government control the nature and
  extent of private enterprise?

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Factors of Production

• Inputs to the production process
• Human resources
• Physical resources
• Knowledge
• Capital
• Infrastructure
• Factor conditions are most obviously critical for
  manufacturing, mining, and agriculture

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Demand Conditions

• Market potential
• Size of home demand
• Growth of home demand
• Composition of home demand (nature of buyer
  needs)
• Internationalization of demand

Composition? Size? Growth? Internationalization?
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Classifying countries by income

• Gross National Income (GNI)(formerly Gross
  National Product - GNP)
• the market value of final goods and services
  newly produced by domestically owned factors of
  production.
• Gross Domestic Product (GDP)
• the value of production that takes place within a
  nations borders, without regard to whether the
  production is done by domestic or foreign factors
  of production

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Examples

• A Ford manufactured in the U.S.
• counts in U.S. GNI (because Ford is a U.S.
  company)
• counts in U.S. GDP (because the work is done in
  the U.S.)
• A Toyota manufactured in the U.S.
• does not count in U.S. GNI (because Toyota is not
  a U.S. company)
• does count in U.S. GDP (because the work is done
  here)

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• A Ford produced in Mexico
• counts in U.S. GNI
• (though the wages paid to Mexicans would be
  deducted)
• But is not part of U.S. GDP

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Importance of Per Capita GNI
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GNI can be an inadequate indicator of wealth

• Purchasing Power Parity (PPP) is the number of
  units of a nations money required to buy goods
  and services inside the country that 1 would buy
  in the U.S.
• PPP is a useful measure since it accounts for
  international differences in price
• Example China has a higher PPP currency value
  than Japan
• 1 worth of yuan buys more in China than 1
  worth of yen buys in Japan

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World regions are growing at radically different
rates
From Map 4.2
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Economic Systems

• Governments struggle with
• who should own businesses
• how they should be controlled

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Economic Freedom

• Market Economy resources are primarily owned and
  controlled by the private sector, not the public
  sector
• Consumer sovereignty - the right of consumers to
  decide what to buy
• Prices are determined by supply and demand

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Little economic freedom

• Command Economy (Centrally Planned Economy) all
  dimensions of economic activity, including
  pricing and production, are determined by a
  central government plan
• Government owns and controls all resources
• Prices are determined by government
• North Korea, Cuba

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No economy is purely market or command

• Mixed Economy Some degree of government
  ownership and control
• Economic systems are along a spectrum of freedoms
• Today, most command economies are moving towards
  a market economy

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Economic Factors International Businesses Must
Consider

• Inflation
• Government Deficits
• Nations External Debt
• Internal Debt
• Privatization
• Balance of Payments

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Reforms and Economic Progress the Vicious Circle
Figure 4.3 - 1
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Reforms and Economic Progress the Virtuous
Circle (the goal)
Figure 4.3 - 2
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Daewoo Growth and Problems

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Chapter Review

• Learn differences among the worlds major
  economic systems
• Learn criteria for dividing countries into
  economic categories
• Discuss economic issues that influence
  international business
• Assess the transition process for market
  economies

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