Chapter 4 Lecture:

The Economic Environment

Countries on Income and Lifespan. (Hans Rasling, 2019)

1st (top right) world countries
2nd (middle) world countries
3rd (bottom left) world countries

· Globalization, Culture, Political and Legal systems: help shape the

economic system
· Economic system then determines the characteristics and performance of
the country market
o This in turn provides opportunities, challenges, costs, and risks for
international managers
o Helps in determining what entry strategy and long-term success in
foreign firms
· Economic freedom:
o 0- free
o 100- very free
· Questions managers ask:
o Level of development:
§ Size, growth potential, stability of market
o Type of economic system
§ Does the government view foreign capital as competition or
partnership with public and local private enterprises?
· How are foreign firms viewed and treated:
o Threat & competitor & viewed with suspicion
o Welcoming
o Mix: Love & hate
§ Company’s industry in the country public or private sector?
· If public, does the government allow private
competition?
· If private, is it moving towards public ownership
§ How does the government control the nature and extent of private
enterprise
o How will doing business there affect the firm?
§ Which entry mode
§ What adjustments does the environment require.
· The Problem of Economic Measurement
o Dizzying variety and diversity of countries and economies
o System Complexity
§ Between 188-214 economies and each one functions uniquely
o Market Dynamism
 § External and internal conditions are constantly changing.
Yesterday’s explanations may not hold today. External shocks.
· Covid
· Global Warning
· Trade policy
o Market Interdependence
§ No country is isolated. Actions in one market affects others
o Data Overload
§ There is a flood of data today and there are differing levels of
quality. This may create analysis paralysis.
o Country Characteristics & Conditions

· 214 separate, discrete economies

o 188 countries (G-7, G20)
§ G-7 Highest, most developed
o 26 other economies (autonomous regions, micro-states, etc.)
· Developed Economies (1st World)
o High income, high industrialization, efficient capital movement,
advanced infrastructure, significant international trade, stable institutions,
high economic freedom
o High wealth and lifespan
· Developing Economies (3nd World)
o Low income, inefficient capital movement, uneven economic
environment, trade restrictions, unstable institutions, uneven infrastructure
 and development, limited competition, cronyism and corruption, low
economic freedom
· Emerging Economies/ Economies in Transition (2rd World)
o 24-30 economies moving from developing toward developed; GDP
growth, manufacturing exports, rising incomes, modernizing infrastructure
and institutions, Foreign Direct Investment targets, liberalization, high
aspirations
 o Each person represents a billion people
· Hans Rasling Video:
o Color shows region
o Size is population
o Horizontal axis- Income
 o Vertical Axis: Lifespan
o No high income country has a life expectancy below 74
o No low income country has a life expectancy above 64
o Most people are in middle income
§ Huge difference in lifespan
· 50-75
· Depending on the way money is distributed and used
o Countries are moving from the left to the right (1800-2020s)
·
· Population and Income Distribution in the World
· Main Economic System Types and the Importance of Economic Freedom
o Economy type:
§ Command
§ Market
§ Mixed
· Overview of Broad Economic Measures
· Why the Interest in Emerging Economies