International Business

Part Two
Comparative Environmental
Frameworks
Chapter Four
The Economic Environments
Facing Businesses
 Chapter Objectives
To understand the importance of economic
analysis of foreign markets
To identify the major dimensions of international
economic analysis
To compare and contrast macroeconomic
indicators
To profile the characteristics of the types of
economic systems
To discuss the idea of economic freedom
To profile the idea, drivers, and constraints of
economic transition

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 Importance of Economic
Environments
Company managers study economic
environments to estimate how trends affect their
performance
A countrys economic policies are a leading
indicator of governments goals and its planned
use of economic tools and market reforms.
Economic development directly impacts citizens,
managers, policymakers, and institutions.

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 Elements of the Economic
Environment
Gross national income (GNI): the income
generated both by total domestic
production as well as the international
production activities of national companies
Gross domestic product (GDP): the total
value of all goods and services produced
within a nations borders over one year, no
matter whether domestic or foreign-owned
companies make the product.

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 Adjustments to GNI
Number of people in a country
Growth rate
Local cost of living
Economic sustainability

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 Other features of an economy
Inflation
Unemployment
Debt
Income distribution
Poverty
Labor costs
Productivity
Balance of payments
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 Definition of Economic System
A mechanism that deals with the
production, distribution, and consumption
of goods and services
Types:
Market economy
Command economy
Mixed economy

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 The Economic Freedom Index
Approximates the extent to which a
government intervenes in the areas of free
choice, free enterprise, and market-driven
prices for reasons that go beyond the
basic need to protect property, liberty,
citizen safety, and market efficiency
Countries with the freest economies have
had the highest annual growth and a
greater degree of wealth creation.

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 Dimensions of The Economic
Freedom Index
Business freedom
Trade freedom
Monetary freedom
Freedom from government
Fiscal freedom
Property rights
Investment freedom
Financial freedom
Freedom from corruption
Labor freedom

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 Transition to a Market Economy
Liberalizing economic activity
Reforming business activity
Establishing legal and institutional frameworks
Success is linked to how well the government
deals with:
Privatization
Deregulation
Property right protection
Fiscal and monetary reform
Antitrust legislation

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