Chapter Four The Economic Environments Facing Businesses International Business Part Two Comparative Environmental Frameworks

4-2 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall 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 idea, drivers, and constraints of economic transition

4-3 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall 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.

4-4 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Elements of the Economic Environment Gross national income (GNI): the income generated both by total domestic production as well as the international production activities of national companies Gross domestic product (GDP): the total value of all goods and services produced within a nation’s borders over one year, no matter whether domestic or foreign-owned companies make the product.

4-5 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Adjustments to GNI Number of people in a country Growth rate Local cost of living Economic sustainability

4-6 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Other features of an economy Inflation Unemployment Debt Income distribution Poverty Labor costs Productivity Balance of payments

4-7 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall 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

4-8 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall The Economic Freedom Index Approximates the extent to which a government intervenes in the areas of free choice, free enterprise, and market-driven prices for reasons that go beyond the basic need to protect property, liberty, citizen safety, and market efficiency Countries with the freest economies have had the highest annual growth and a greater degree of wealth creation.

4-9 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall 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

4-10 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Transition to a Market Economy Liberalizing economic activity Reforming business activity Establishing legal and institutional frameworks Success is linked to how well the government deals with:  Privatization  Deregulation  Property right protection  Fiscal and monetary reform  Antitrust legislation