World Economy - Global Economics - Lecture Slides, Slides of Economics

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Chapter 2

The Global Economic

Environment

Introduction

This chapter includes

An overview of the world economy A survey of economic system types The stages of market development The balance of payments

The World Economy—An Overview

The new realities

Capital movements have replaced trade as the driving force of the world economy Production has become uncoupled from employment The world economy, not individual countries, is the dominating factor

The World Economy—An Overview

The new realities, continued

75-year struggle between capitalism and socialism has almost ended E-commerce diminishes the importance of national barriers and forces companies to reevaluate business models

Market Capitalism

Individuals and firms allocate resources

Production resources are privately

owned

Driven by consumers

Government’s role is to promote

competition among firms and ensure

consumer protection

Centrally Planned Socialism

Opposite of market capitalism State holds broad powers to serve the public interest; decides what goods and services are produced and in what quantities Consumers can spend on what is available Government owns entire industries and controls distribution Demand typically exceeds supply Little reliance on product differentiation, advertising, pricing strategy

Economic Freedom

Rankings of economic freedom among countries free, mostly free, mostly unfree, repressed Variables considered include such things as: Trade policy Taxation policy Capital flows and foreign investment Banking policy Wage and price controls Property rights Black market

Economic Freedom

Free

1. Hong Kong
2. Singapore
3. Ireland
4. Luxembourg
5. Iceland/U.K.
6. Estonia
7. Denmark
8. Australia/New Zealand/United States

Repressed

150. Cuba
151. Belarus
152. Libya/Venezuela
153. Zimbabwe
154. Burma
155. Iran
156. North Korea

Low-Income Countries

GNP per capita of $ 825 or less

Characteristics

Limited industrialization High percentage of population involved in farming High birth rates Low literacy rates Heavy reliance on foreign aid Political instability and unrest Concentrated in Sub-Saharan Africa India is the only BRIC country

Lower-Middle-Income Countries

GNI per capita: $826 to $3,

Characteristics

Rapidly expanding consumer markets Cheap labor Mature, standardized, labor-intensive industries like textiles and toys

BRIC nations are China and Brazil

Marketing Opportunities in LDCs

Characterized by a shortage of goods and services Long-term opportunities must be nurtured in these countries Look beyond per capita GNP Consider the LDCs collectively rather than individually Consider first mover advantage Set realistic deadlines

Mistaken Assumptions About LDCs

1. The poor have no money.
2. The poor will not “waste” money on non- essential goods.
3. Entering developing markets is fruitless because goods there are too cheap to make a profit.
4. People in BOP (bottom of the pyramid) countries cannot use technology.
5. Global companies doing business in BOP countries will be seen as exploiting the poor.

High-Income Countries

Characteristics, continued

Importance of information processing and exchange Ascendancy of knowledge over capital, intellectual over machine technology, scientists and professionals over engineers and semiskilled workers Future oriented Importance of interpersonal relationships

G-8, the Group of Eight

Goal of global economic stability and prosperity United States Japan Germany France Britain Canada Italy Russia (1998) (^) 2007 G-8 leaders in Germany