Transcript Chapter 08
8 McGraw-Hill/Irwin
Economic and Socioeconomic Forces
This chapter covers: •The purpose of economic analysis •Economic and socio economic dimensions •Consumption patterns and purchasing power •Labor costs •The significance of foreign debt •Birthrate trends and its implications •Indicative plans International Business by Ball, McCulloch, Frantz, Geringer, and Minor
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Objectives
Understand the purpose of economic analysis Recognize the economic and socioeconomic dimensions of the economy Understand the importance of a nation’s consumption patterns and the significance of purchasing power parity Understand the degree to which labor costs can vary from country to country Understand the significance for businesspeople of the large foreign debts of some nations Ascertain the reasons for the worldwide downward trend in birthrates and its implications for businesspeople 8-2
International Economic Analyses
Economic Analysis
When a firm enters overseas markets, economic analyses become more complex
Should provide data on both actual and prospective markets 8-3
International Economic Analysis
Sources for Economic Information
Reports from central or international banks
American chambers of commerce
Commercial officers in U.S. embassies
The United Nations and the World Bank
The International Monetary Fund
The Organization for Economic Cooperation and Development 8-4
8-5
Dimensions of the Economy
Important Economic Indicators
Gross National Product
Distribution of income Private consumption expenditures
Personal ownership of goods Private investment Unit labor costs Exchange rates Inflation rates Interest rates
Dimensions of the Economy
Gross Domestic Product (GDP) Or Gross National Income (GNI)
The total of all goods and services produced in a country in a given year, including production by foreign firms within a country’s borders
In order to compare the purchasing power of nations managers need to know among how many people GDP is divided
GDP Or GNI/Capita
Generally the higher the value, the more advanced the economy.
8-6
Dimensions of the Economy
Income Distribution
A measure of how a nation’s income is apportioned among its people
Data gathered by the World Bank Published yearly in the World Development Indicators
Income is more evenly distributed in richer nations
Income redistribution proceeds very slowly Income inequality increases in early stages of development but reverses in later stages 8-7
8-8
Dimensions of the Economy
Private Consumption
Disposable income
After-tax personal income
Discretionary income
Disposable income less essential purchases
Data available from UN and World Bank
Dimensions of the Economy
Unit labor costs
Total direct labor costs divided by units produced.
Countries with slower-rising unit labor costs attract management’s attention.
Reasons for relative changes in labor costs
Compensation
Productivity Exchange rates
International firms must keep a close watch on labor rates around the world 8-9
Dimensions of the Economy
Example of how large foreign debts affect an international firm
If a large part of the foreign exchange a nation earns cannot be used to import components used in local products, then
Local industries must manufacture the part or companies that import the part must stop production in the home country
Socioeconomic Dimensions
Total Population
Most general indicator of potential market size
First characteristic of the population that analysts examine Population size, used alone, is not a good indicator of economic strength and market potential 8-11
Socioeconomic Dimensions
Total Population and GNP
Where GNP increases faster than the population
Probably an expanding market.
Where population increases faster than GNP
Possible market contraction.
This situation may suggest a potential area of political unrest may be present.
Example is Egypt
Socioeconomic Dimensions
Age Distribution
Generally, because of high birth and fertility rates
Developing countries have more youthful populations than do industrial countries
Birthrates are decreasing worldwide
Population of developing countries account for over three-quarters of the world’s population 8-13
Figure 8.3
Population Growth
8-14
8-15
Forces Reducing Birthrates
Government supported family planning programs
Improved levels of health, education and status for women
More even distribution of income
Greater degree of urbanization
Socioeconomic Dimensions
Concern in Developed Nations
Declining birthrates are causing concern in the governments of industrialized nations.
An increasing number of young Europeans are not marrying.
Those who are marrying, do so later and are having fewer children.
By the year 2025, the present 9 percent unemployment rate in the EU will be replaced by a shortage of workers
.
8-16
Socioeconomic Dimensions
Concern in Developed Nations (Japan)
By 2025, Japan’s population age 65 and older will make up 26.8 percent of its total population.
This proportion compares to 18.5 percent of this age group in the U.S.
By the year 2025, Japan will have twice as many old people as it has
children.
8-17
Socioeconomic Dimensions
Population Density
A measure of the number of inhabitants per area unit.
Densely populated countries tend to make product distribution and communications simpler.
Less costly than less densely populated countries
Population Distribution
A measure of how the inhabitants are distributed over a nation’s area.
Changing population distribution
Rural-to-urban shift as people move to cities in search of higher wages and more conveniences
.
8-18
Table 8.6
Rural-to-Urban Shift
8-19
Socioeconomic Dimensions
Increase in the number of working women
May require marketers to alter the promotional mix.
Results in larger family incomes.
Results in a greater market for convenience goods.
8-20
United States R&D % of GDP
8-23
Consumption Groups in Hungary
8-24
Georgia State Average Annual Pay
8-25
10 Places With the Lowest Birth Rates Worldwide Average number of children per woman, 2000-2005
Hong Kong Special Administrative Region Latvia Bulgaria Macao Special Adminstrative Region Slovenia Russian Federation Spain Ukraine Armenia Czech Republic 1.00
1.10
1.10
1.10
Source: United Nations,
World Population Prospects: The 2002 Revision
(medium scenario), 2003.
8-26 1.14
1.14
1.15
1.15
1.15
1.16