Chapter 4

The Economic Environment

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Major Industrialized countries
around the world:

The Group of Five: U.S.A, Britain,

France, Germany, and Japan
The Group of Seven: + Italy and
Canada
The Group of Ten: + Sweden,
Netherlands, and Belgium
NIC (Newly Industrialized
Countries): Singapore, Taiwan,
Korea, Hong Kong, Brazil, and
Mexico
Major Industrialized Countries of the
World
 Market Characteristics
 Population demographics
 Age distribution, life expectancies,
household size, urbanization.
 Income
 Distribution of low, medium, and high incomes.
 Gross domestic product per capita.
 Purchasing power parity.
 Consumption patterns
 Income spent on necessities and luxuries.
 Product saturation or diffusion.
 Product form differences.
 Market Characteristics
(continued)
 Availability and quality of infrastructure
 Rail, Air, Highway traffic networks for distribution
capabilities.
 Communication systems for marketing.
 Energy (electrical and fuel) consumption.
 Foreign involvement in the economy
 Degree of foreign direct investment in country or in a
specific industry.
 Rules governing foreign investment.
 Impact of the economic environment on social
development
 Urbanization, life expectancy, literacy rates, etc.
 Physical Quality of Life Index (PQLI).
 Purchasing Power Parities (PPP): Show
how many units of currency are needed in one
country to buy the amount of goods and
services that one units of currency will buy in
another country.

 PhysicalQuality of Life Index (PQLI): A

composite measure of the level of welfare in a
country. It has three components: life
expectancy, infant mortality, and adult literacy
rates.
 Cross-border business has been
driven by three main factors:
Falling regulatory barriers to
overseas investment
Smaller costs in telecommunications
and transportation
Freer domestic and international
capital market in which companies
can be bought
Regional Economic
Integration
Levels of economic integration
◦ Free Trade Area
 Least restrictive.
 Goods and services are freely trades among all
members. Each country maintains its own trade
barriers for nonmembers.
◦ Customs Union
 Members establish a common trade policy with respect
to nonmembers.
◦ Common Market
 Factors of production mobility is emphasized. A
common external tariff is adopted.
◦ Economic Union
 Integration and harmonization of economic and
monetary policies is achieved leading to political
union.
Economic Freedom—
2014 Rankings
Free Repressed
1. Hong Kong 169. Republic of Congo
2. Singapore 170. Timor-Leste
3. Australia 171.Turkmenistan
4. Switzerland 172.Dem. Rep. Congo
5. New Zealand 173.Iran
6. Canada 174. Eritrea
7. Chile 175.Venezuela
8. Mauritius 176.Zimbabwe
9. Ireland 177.Cuba
10. Denmark 178. North Korea
Singapore - authoritarian state capitalism
2-9
Integrations
North America Integration
European Integration
Integration in Latin
America
Integration in Asia
NAFTA

 TheNorth American Free Trade

Agreement (NAFTA) created the world’s
largest free market.
◦ 390 million U.S., Canadian, and Mexican
consumers and a total output of $10 trillion.
Integration in Asia

 Association of Southeast Asian Nations

(ASEAN)
 East Asia Economic Group
 Asia-Pacific Economic Cooperation (APEC)
 South Asian Association for Regional
Cooperation (SAARC)