chapter eight

Economic and Socioeconomic Forces

McGraw-Hill/Irwin International Business, 11/e

Copyright 2008 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives
State the purpose of economic analysis Identify different categories based on levels of
national economic development and the common characteristics of developing nations

Recognize the economic and socioeconomic

dimensions of the economy and different indicators used to assess them

Discuss the importance of a nations consumption

patterns and the significance of purchasing power parity
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Learning Objectives Discuss the new definition of economic

development, which includes more than economic growth

Explain the degree to which labor costs can vary

from country to country

Discuss the significance for businesspeople of the

large foreign debts of some nations

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International Economic Analyses (Table 8.1)

Economic Analysis

When a firm enters overseas markets,

economic analyses become more complex

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International Economic Analysis

Sources for Economic Information

The Commercial officers in embassies The World Bank The United Nations The International Monetary Fund The Organization for Economic
Cooperation and Development

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Levels of Economic Development

Developed
A classification for all industrialized nations, which are the most technically developed

Developing
A classification for lower income nations, which are less technically developed

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Levels of Economic Development

Newly industrialized economies (NIEs)
The fast-growing upper-middle-income and high income economies of South Korea, Taiwan, Hong Kong, and Singapore

Newly industrializing countries (NICs)

The four Asian Tigers and the middleincome economies such as Brazil, Mexico, Malaysia, Chile, and Thailand

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Dimensions of the Economy

Important Economic Indicators

Gross National Income (GNI) GNI/capita Income Distribution Private consumption Unit labor costs Exchange rates Inflation rates Interest rates

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Dimensions of the Economy

Gross National Income (GNI)
The measure of the income generated by a nations residents from international and domestic activity Preferred over GDP

GNI/Capita
Used to compare countries with respect to the well-being of their citizens and to assess market or investment potential
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Underground economy

Underground economy
That part of a nations income not measured by official statistics unreporting underreporting

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Purchasing Power Parity

Purchasing Power Parity

The number of units of a currency required to buy the same amount of goods and services in a domestic market that $1.00 would buy in the U.S. Helps to make comparisons possible across economies

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Dimensions of the Economy

Income Distribution

A measure of how a nations income is

apportioned among its people Reported as the percentage of income received by population quintiles Data gathered by World Bank Income more evenly distributed in richer nations Income redistribution proceeds slowly Income inequality increases in early stages of development but reverses in later stages
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Dimensions of the Economy

Private Consumption

Disposable income after-tax personal income Discretionary income income left after paying taxes and
making essential purchases
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Private Consumption Based on Purchasing Power Parity

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Dimensions of the Economy

Unit labor costs

Total direct labor costs divided by units

produced Countries with slower-rising unit labor costs attract managements attention

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Dimensions of the Economy

Reasons for relative changes in labor costs
Compensation Productivity Exchange rates

International firms must keep close watch on labor rates around the world
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Dimensions of the Economy

Large international debts of middle- and low-income nations affect multinational firms
When foreign exchange must be used for loan repayment, import of components used in local production is reduced Local industries must manufacture these components or production must stop

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Major International Debtors

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Socioeconomic Dimensions

Total Population
Most general indicator of potential market size Population size, used alone, is not good indicator of economic strength and market potential

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Socioeconomic Dimensions

Age Distribution
Developing countries have more youthful populations than do industrial countries Birthrates decreasing worldwide Population of developing countries accounts for over three-quarters of worlds population
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Population Growth

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Forces Reducing Birthrates

Government supported family planning programs Improved levels of health, education along with enhanced status for women More even distribution of income Greater degree of urbanization
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Concern: Birthrate Decline

Concern in Developed Nations: Europe An increasing number of young Europeans not marrying Marriages are later, with fewer children By 2025, the present 9 percent unemployment rate in the EU will be replaced by a shortage of workers

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Concern: Birthrate Decline

Concern in Developed Nations: Japan By 2025, Japans population aged 65 and older will make up 26.8 percent of total population By 2025, Japan will have twice as many old people as children

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Socioeconomic Dimensions

Population Density
A measure of the number of inhabitants per area unit product distribution and communications simpler and cheaper in densely populated countries

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Socioeconomic Dimensions

Population Distribution
A measure of how the inhabitants are distributed over a nations area Changing population distribution: ruralto-urban shift

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Rural-to-Urban Shift (Table 8.8)

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Socioeconomic Dimensions

Increase in the number of working women

May require marketers to alter promotional mix Results in larger family incomes Results in a greater market for convenience goods

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Population Distribution

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