International Business MBA

1. MBA 3
IB
Module 1
GLOBAL BUSINESS
ENVIRONMENT: ECONOMIC
ENVIRONMENTS FACING
BUSINESS

2. INTRODUCTION
• This chapter presents the perspectives and tools that
managers use to evaluate economic environments
• Different countries have different level of economic
development, performance and potential
• When a company wants to do business in another
country it must answer questions like wealth, income,
stability, poverty and so on

3. TYPES OF ECONOMIC SYSTEMS
• An economic system is the set of structures and
processes that guides the allocation of resources and
shapes the conduct of business activities in a country
• Types of Economic systems are..
1. Market Economy
2. Command Economy
3. Mixed Economy

4. 1. MARKET ECONOMY
• In this system individual rather than Govt make the
majority of economic decisions
• It encourages open exchange of goods and services
between producers and consumers
• It gives freedom to decide where to work doing what,
how to spend or save money and whether to consume
now or later
• Its based on Laissez faire principle and also comes
from concept of capitalism

5. 2. COMMAND ECONOMY
• Also known as centrally planned economy
• It describes the system whereby the Govt owns and
controls all resources
• Hence the Govt commands the authority to decide what
goods and services a country will produce, the quantity
in which they are produced and the price at which they
are sold
• Lack of innovation for producers, lack of alternatives for
consumers

6. 3. MIXED ECONOMY
• Most economies are usually mixed one
• In such system economic decisions are largely market
driven and ownership is largely private but the Govt
intervenes in private economic decisions
• Here prices are set based on market mechanism of
demand and supply
• South Africa, Japan, South Korea, France, India,
Germany, Brazil etc

7. ECONOMIC ANALYSIS
• Managers study various features of the economy for
analyzing the performance and productivity of a particular
country’s economy. They analyze…
1. Inflation
2. Unemployment
3. Debt
4. Income distribution
5. Poverty
6. Balance of Payments

8. 1. INFLATION
• Inflation is the measure of the increase in the cost of living
• Sustained rise in prices measured against a standard level
of purchasing power is called inflation
• Rising prices make it more difficult for consumers to buy
products unless their incomes rise at the same or faster
pace
• In Chronic or hyper inflation, one cannot plan the long term
investment, because they have nothing to save
• Govt has to control such types of inflations.

9. 2. UNEMPLOYMENT
• Unemployment is the measure of the number of workers
who want to work but do not have jobs.
• Presently the youth of the world suffer the highest rate of
unemployment in most countries
• Countries that are unable to create jobs for their citizens
create a risky business environment
• People out of work and unable to find jobs depress
economic growth and create social pressures
• Govt have to use the human resource productively

10. 3. DEBT
• It is the sum total of Govt’s financial obligations, measures
the state’s borrowings from its population, from foreign
organisations, from foreign govt and from any other
international institutions
• The larger the total debt becomes, the more uncertain a
country’s economy becomes
• A country has two types of debts, Internal and External
 Internal Debt: Portion of debt that is from country’s own
currency and held by domestic residents.
 External Debt: Debts owed to foreign creditors and that is in
foreign currency.

11. 4. INCOME DISTRIBUTION
• This is a description of the fractions of a population that
are at various levels of incomes
• Gini coefficient measures the degree of inequality in the
distribution of family income in the country
• There is strong relationship between those who live in
urban setting as compared to those who live in rural
areas
• This gap has to be resolved by the Govt for stability in
the economy

12. 5. POVERTY
• Poverty is the condition in which a person or
community is deprived of or lacks the essentials for a
minimum standard of well being and life
• This can be food, safe drinking water, shelter,
education, health care, etc.
• In nation with extreme poverty market system may not
exist, infrastructures are poor, criminal behavior could
be there, etc

13. 6. BALANCE OF PAYMENT
• It is the statement of the balance of country’s trade and
financial transactions as conducted by individuals,
businesses, and govt agencies located in that nation
• It is simply the balance of import and export transactions
• The BOP has two main accounts:
 Current: Which tracks all trade activities in merchandise
 Capital: Which tracks both loans given to foreigner and
received from them