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Chapter Four

The Economic EnvironmentsFacing Businesses

International Business

Part Two

Comparative EnvironmentalFrameworks

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Chapter Objectives

To understand the importance of economicanalysis of foreign markets

To identify the major dimensions of internationaleconomic analysis

To compare and contrast macroeconomicindicators

To profile the characteristics of the types ofeconomic systems

To discuss the idea of economic freedom To profile the idea, drivers, and constraints of

economic transition

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Importance of Economic

Environments

Company managers study economic

environments to estimate how trends affect their

performance

A countrys economic policies are a leadingindicator of governments goals and its planned

use of economic tools and market reforms.

Economic development directly impacts citizens,

managers, policymakers, and institutions.

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Elements of the Economic

Environment

Gross national income (GNI): the incomegenerated both by total domesticproduction as well as the international

production activities of national companies Gross domestic product (GDP): the total

value of all goods and services producedwithin a nations borders over one year, nomatter whether domestic or foreign-ownedcompanies make the product.

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Adjustments to GNI

Number of people in a country

Growth rate

Local cost of living Economic sustainability

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Other features of an economy

Inflation

Unemployment

Debt Income distribution

Poverty

Labor costs Productivity

Balance of payments

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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

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The Economic Freedom Index

Approximates the extent to which agovernment intervenes in the areas of freechoice, free enterprise, and market-driven

prices for reasons that go beyond thebasic need to protect property, liberty,citizen safety, and market efficiency

Countries with the freest economies havehad the highest annual growth and agreater degree of wealth creation.

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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

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Transition to a Market Economy

Liberalizing economic activity

Reforming business activity

Establishing legal and institutional frameworks

Success is linked to how well the governmentdeals with: Privatization

Deregulation

Property right protection Fiscal and monetary reform

Antitrust legislation