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 country’s economic policies are a leading
indicator of government’s 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 nation’s 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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