4-1 international business: opportunities and challenges in a flattening world, 1e by mason...

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International Business: Opportunities and Challenges in a Flattening World, 1e

By Mason Carpenter and Sanjyot P. Dunung

© Sanjyot Dunung 2011, published by Flat World Knowledge

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Chapter 4World Economies


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Learning Objectives

• Understand how economies are classified

• Evaluate the statistics used in classifications: GNP, GDP, PPP as well as HDI, HPI, GDI, and GEM

• Understand what the developed world is

• Identify the major developed economies

• Understand what the developing world is


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Learning Objectives

• Identify the major developing economies and regions

• Understand what the emerging markets and BRIC countries are

• Identify key emerging markets


Classification of Economies

• When evaluating a country, a manager is assessing:

– The country’s income and the purchasing power of its people

– The legal, regulatory, and commercial infrastructure

– The sophistication of the business environment

4-6© Sanjyot Dunung 2011, published by Flat World Knowledge

Statistics Used in Classifications

• Gross domestic product (GDP): The value of all the goods and services produced by a country in a single year

• Per capita GDP: The value of the GDP divided by the population of the country

– This is referred to as the nominal per capita GDP

• GDP per person: The value of the GDP adjusted for purchasing power

– Helps managers understand how much income local residents have


Statistics Used in Classifications

• Purchasing power parity (PPP): An economic theory that adjusts the exchange rate between countries to ensure that a good is purchased for the same price in the same currency


Figure 4.3 - Per Capita GDP (Nominal) versus Per Capita GDP (PPP) of Select Countries (2010)


Human Development Index (HDI)

• Human development index (HDI): A summary composite index that measures a country’s average achievements in three basic aspects of human development: health, knowledge, and a decent standard of living

• Human poverty index (HPI): A composite index that uses indicators of the most basic dimensions of deprivation: a short life (i.e., longevity), lack of basic education (i.e., knowledge), and lack of access to public and private resources (i.e., decent standard of living)


The Developed World

• Developed economies: Also known as advanced economies, these countries are characterized as postindustrial with high per capita incomes, competitive industries, transparent legal and regulatory environments, and well-developed commercial infrastructures


The United States

• The United States is the fourth-largest country in the world—after Russia, China, and Canada

• The United States is the world’s largest single-country economy and accounts for nearly 25 percent of the global gross domestic product (GDP)

• The strength of the U.S. economy is due in large part to its diversity

• The United States has a service-based economy. In 2009, industry accounted for 21.9 percent of the GDP


The United States

• Services (including finance, insurance, and real estate) for 76.9 percent; and agriculture for 1.2 percent

• Bull market: A market in which prices rise for a prolonged period of time

• Bear market: A market in which prices steadily drop in a downward cycle


Germany

• Germany, a member of the EU (European Union), has the fifth-largest economy in the world

• The country is a leading exporter of machinery, vehicles, chemicals, and household equipment and benefits from a highly skilled labor force

• It is the largest and strongest economy in Europe

• Services drive the economy, representing 72.3 percent (in 2009) of the total GDP

• Industry accounts for 26.8 percent of the economy, and agriculture represents 0.9 percent


Japan

• Japan’s post–World War II success has been the result of a well-crafted economic policy closely administered by the government in alliance with large businesses

• It also benefits from its highly skilled workforce

• Japan has very few mineral and energy resources and relies heavily on imports to bring in almost all of its oil, iron ore, lead, wool, and cotton. It is the world’s largest importer of numerous raw materials including coal, copper, zinc, and lumber

• As with other developed nations, services lead the economy, representing 76.5 percent of the national GDP, while industry accounts for 21.9 percent of the country’s output


Developing World

• Developing world: Countries that rank lower on various classifications including GDP and the HDI

– These countries tend to have economies focused on one or more key industries and tend to have poor commercial infrastructure

– The local business environment tends not to be transparent, and there is usually a weak competitive industry

• Developing countries sometimes find that their economies improve and gradually they become emerging markets


Developing World

• Focusing only on today’s political, economic, and social conditions distorts the picture of what these countries have been and what they might become again

• Developing economies typically have poor, inadequate, or unequal access to infrastructure


Major Developing Economies and Regions

• The Middle East

• Africa

• Nigeria


How Do Developing Countries Become Emerging Markets?

• A developing country, in order to evolve into an emerging market, must:

– Seek to implement transparency in its government as well as in its political and economic institutions to help inspire business confidence in its country

– Develop the local commercial infrastructure and reduce trade barriers to attract foreign businesses

– Educate the population equally and create a healthy domestic workforce that’s both skilled and relatively cheap

• First-mover advantage: The benefit that a company gains by entering into a market first or introducing a new product or service before its competitors


What Exactly Is an Emerging Market?

• Emerging market: An evolving definition that is currently viewed as a country that can be defined as a society transitioning from a centrally managed economy to a free market-oriented-economy, with increasing economic freedom

– Gradual integration within the global marketplace

– An expanding middle class

– Improving standards of living, social stability, and tolerance

– An increase in cooperation with multilateral institutions


Key Emerging Markets

• Asia

– China

– India

• Europe

– Russia

• Africa

– South Africa

• Latin America

– Brazil4-21© Sanjyot Dunung 2011, published by Flat World Knowledge

4-1 international business: opportunities and challenges in a flattening world, 1e by mason...

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