Economic environment

Radek Čajka, Ph.D.

October 17, 2019
 About the lecturer
• Radek Čajka, Ph.D.
– Assistant professor at the Department of International Business,
Faculty of International Relations
– Vide-dean for international relations and PR
– IBB Academic Director

– radek.cajka@vse.cz
– office hours:
• Monday 10am – 12n
• Tuesday 1:30 pm – 2:30pm

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 Outline of the lecture
• Importance of the topic – why
does it matter?
• Types of economic systems
• Macroeconomic indicators
• Other economic indicators
(structure of the economy,
labor market)
• Currency and exchange rate
risk
• Shadow economy
• Trade policy
• Market size and PPP
• Competition
• Technological aspects
• Financial sector development
• Easiness of doing business
• Sources of data and
information
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 Why does it matter?
• Economic aspects are crucial for businesses when
entering new markets or assessing current ones
• Precise assessment of these aspects must be
done before any business activity starts
• Different factors are important by different
motivations (place of production x place of
consumption x both)

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 Types of economic systems
• Command economy
• Market economy
• Mixed economy

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 Types of economic systems
• Command economy
– Allocation of resources including production and
pricing is planned by the government
– The plan tackles certain goals
– Businesses are state owned
– Public good x inefficiency

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 Types of economic systems
• Market economy
– Interaction of supply and demand determines
quantity of production and pricing
– In this type of market, consumers are sovereign
– Danger of monopoly/monopsony
– Role of the government?

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 Types of economic systems
• Mixed economy
– Certain sectors are left to private ownership, while
other have significant state ownership
– Western Europe until the end of 1980s
– In some countries today, role of state is on the rise
– Increase in time of crisis

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 Macroeconomic indicators
• Stability, past development and future outlook
of the economy are essential for successful
business
• Indicators to be taken into account
– GDP/capita, GDP/capita in PPP, GDP growth,
inflation rate, unemployment rate

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 Macroeconomic indicators
• GDP indicators
– Basic indicators about the strength of the
economy
– GDP/capita
– GDP/capita in PPP
– GDP growth

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 Macroeconomic indicators
• Inflation rate
– It is an increase in the level of prices of goods and
services
– Important is its stability and predictability
– Figures and case

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 Macroeconomic indicators
• Unemployment rate
– Percentage of economically active people looking
for a job
– Important is its value, structure and development
in time

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 Other economic indicators
• Structure of the economy
– Ratio of primary, secondary and tertiary sectors
– Impacts comparative advantages of the economy,
competition, suppliers and customers
– Some economies are industry based, some
services based

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 Other economic indicators
• Labor market
– There are many factors influencing labor force:
• Population, education
• Quality, skills
• Regulations, labor unions

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 Currency and exchange rate risk
• Significant factor influencing profit margin
• When business is done in different currencies
• Companies have to work with this risk and
very often they try to minimize it
• Internal x external hedging methods

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Shadow economy as % of the official
GDP
30

25

20

15
2003
10
2012
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Source: Schneider, F: Size and Development of the Shadow Economy of

31 European and 5 other OECD Countries from 2003 to 2012: Some New Facts

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 Trade policy
• Important for trading goods and services
• Is the country member of WTO?
• What trade barries does it use?
• Are there any signed FTA agreements?

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 Market size and PPP
• When looking for final market, market size is very
important

• But, absolute numbers in terms of population are

sometimes misleading
– We have to take into account what people can afford
to buy

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 Competition
• For businesses, competition is crucial
– Is there any?
– If so, how many companies? Mostly domestic or
mostly international?
– How do they do financially?
– What is the level of concentration?
– Is competition innovative?
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 Technological aspect
• Technology and its progress affects business
– Distribution, logistics typical in the country
– Use of internet for buying
– Use of smart devices for buying
– CRM systems

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 Financial sector development
• Availability of financial services
– Loans, bank branches
– Directly x indirectly to foreign entities
– Bond market, stock market

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 Easiness of doing business
• Is it easy to do business in the given country?
– How long do things take?
– Fees
– Level of bureaucracy

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 Sources of data and information
• World Bank Open Data
• Doing Business project
• Global Competitiveness Report (WEF)

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