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

8-3

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

8-4

International Economic Analyses

(Table 8.1)

Economic Analysis

When a firm enters overseas markets,

economic analyses become more complex

8-5

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

8-6

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

8-7

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

8-8

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

8-9

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
8-10

Underground economy

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

8-11

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

8-12

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
8-13

Dimensions of the Economy

Private Consumption

Disposable income
after-tax personal income
Discretionary income
income left after paying taxes

and making essential purchases

8-14

Private Consumption Based on

Purchasing Power Parity

8-15

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

8-16

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
8-17

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

8-18

Major International Debtors

8-19

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

8-20

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

8-21

Population Growth

8-22

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
8-23

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

8-24

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

8-25

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

8-26

Socioeconomic Dimensions

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

8-27

Rural-to-Urban Shift
(Table 8.8)

8-28

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

8-29

Population Distribution

8-30