The Economic Environments Facing Businesses.

1. IAF 605 - International Business Management
The Economic Environments
Facing Businesses
Week 4

2. Reminder
Jun 23rd - mid-term exam
 chapters 1 - 4, 6 and 7
 cases
 class discussions
2

3. Agenda
Week 3 - review
Chapter 4 – The Economic
Environments Facing Businesses
Meet the BRICs Case Discussion

4. Chapter Objectives
• To understand the importance of economic analysis of
foreign markets
• 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 causes and consequences of economic
change

5. Economic Factors Affecting International Business Operations
(p136)

6. Importance of Economic Environments
Company managers study economic
environments to estimate how trends
affect their performance
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,
policymakers, and institutions.

7. Elements of the Economic Environment

8. GNI per capita (Map 4.2 page 139)
China
GNI
GNI per capita

9. Group Exercise - Other features of an economy
2.
1. Inflation
Unemployment
4. Income
3. Debt
distribution
5. Poverty 5. Labor costs
6. Balance of
6. Productivity
payments
Image source: http://www.flickr.com/photos/nics_events/

10. Definition of Economic System
• Market economy
A mechanism that • Command
deals with the economy
production, • Mixed economy
distribution, and
consumption of
goods and
services Types:

11. Economic Systems - the role of government in the economy
Market economy Command economy Mixed economy
• laissez-faire • centrally-planned • command +
• free market • gov’t owns and market
• capitalism controls resources • socialist or state
capitalism

12. The Economic Freedom Index
freedom protect Countries with
the freest
economies have
had the highest
annual growth
and a greater
degree of wealth
creation.

13. The Economic Freedom Index -
http://www.youtube.com/watch?v=8ZuIC_HHHHA

14. Expanding Role of the State -
http://www.youtube.com/watch?v=jl6yKKdcQ0Q

15. Transition to a Market Economy
Establishing
Liberalizing Reforming
legal and
economic business
institutional
activity activity
frameworks

16. Who are the BRICs
The BRIC countries, Brazil, Russia, India and China, while much larger
in scale and scope than other emerging markets, symbolically
represent trends that are developing throughout the world
Over the next few decades BRIC will become a larger, powerful force
in the world economy
China and India will be the dominant global suppliers of manufactured
goods and services, while Brazil and Russia will become the principal
suppliers of raw materials. Collectively, they will become the largest
entity on the global stage
Image source: http://www.flickr.com/photos/nickobec/

17. The BRIC Situation
endemic problem of
on the verge of rapid “recency bias,” which is
growth in consumer the dubious expectation
products that the current trend will
continue into the future
face futures of
widespread poverty and
distorted income
distributions
Image source: http://www.flickr.com/photos/seier/

18. Mixing
Bilateral and
Multilateral
cooperation between
BRIC countries
Strengthening ties to
Declining role of the
ease distrust and
U.S. dollar
boost trade

19. Challenges
Political The emergence
uncertainties of the BRICs will
and social challenge the
assumptions in well-being and
each country sustainability of
limit their the global
potential environment
Image source: http://www.flickr.com/photos/donaldmacleod/

20. Conditions for a market economy to grow consistently
Sound macroeconomic policies and a solid macroeconomic background, as
seen in low inflation, prudent public finances, and supportive government
policy
Strong political institutions that endorse transparency, fairness, and the rule
of law
Openness to trade, capital flows, and foreign direct investment
High levels of education at both the primary and secondary levels

21. Meet the BRICs
Map the proposed
sequence of evolution
of the economies of What are the
the BRICs. What implications of the
indicators might emergence of the
companies monitor to BRICs for careers and
guide their investments companies in Canada?
and organize their local
market operations?

22. Meet the BRICs
How might managers
Do you think the
interpret the potential
recency bias has led to
for their product in a
overestimating the
market that is, in
potential of the BRICs?
absolute economic
How would you, as a
terms, large but, on a
manager for a
per capita basis,
company assessing
characterized by a
these markets, try to
majority of poor or
control this bias?
very poor consumers?

23. Meet the BRICs
Compare and contrast
In the event that one
the merits of GNI per
BRIC country, if not all,
capita versus the idea
fails to meet its
of purchasing power
projected performance,
parity, human
what would be some of
development, and
the implications for the
green economics as
economic environment
indicators of economic
of international
potential in Brazil,
business?
Russia, China, and India

24. Homework
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