BSB119 – GLOBAL BUSINESS
LECTURE 3: BUSINESS CHARACTERISTICS – SOCIO ECONOMIC CHARACTERISTICS
For assistance with researching for the assignment and the tutorial homework for this week, see
the additional lecture slides which have been posted on to Bb.
Which country is going to offer the business the greatest potential for growth and profit as a
production location and a market?
On what specific indicators was the choice made?
What are the limitations of the economic measures of development?
What are the economic and non-economic determinants of the market potential of a country?
Analysing the Economic Environment
Important to consider:
o the type of economic system (market economy; centrally planned economy; mixed
SIZE – Gross National Income (GNI): total value of income accuring to a nation’s
o the extent of private ownership of the means of production, distribution and exchange;
o the economic structure, especially the balance between primary industry (including mining
and agriculture); secondary industry (including various types of manufacturing), and service
o the level of economic activity, with reference to inflation, unemployment and the balance of
Adjusting to the Economic Environment
The world economy is obviously not homogeneous.
Differences in the economic environment confront MNCs with a broad range of situations.
A fundamental aspect is the type of economic system in which the firm operates.
It is customary to distinguish between market economies, centrally planned economies and mixed
This type of economy emphasises private ownership and free market activity.
The market economy is used by all major industrialised countries. However, large corporations,
trade unions and governments limit the freedom of the market. In entering a market a MNC needs
to assess the impact of these factors.
In a market economy firms use resources and produce products, while individuals own resources
and consume products.
As long as firms and individuals are free to make decisions, the interplay of supply and demand
should ensure a proper allocation of resources?
Centrally Planned Economies
A centrally planned or command economy is one in which the allocative and distributive functions
of the market are assumed by government.
The assumption is that the government is a better judge of how resources should be allocated than
is the market. 2
o China is the foremost example of a centrally planned economy, but has moved to introduce
market forces to revitalise the economy.
In its most extreme form, the government determines centrally what is to be produced, the levels
of production, the employment of resources and the distribution of output.
Mixed economies are characterised by different mixtures of market and command economies and
public and private ownership of resources.
o In some cases, the degree of government intervention is difficult to quantify.
For example, in Japan the ratios of government revenues and expenditures to GDP
are lower than in many other countries, but the government has a prominent role in
national economic planning.
Government intervention is evident in mixed economies and takes two main forms:
o government ownership of the means of production and;
o government influence in economic decision making.
Selecting the target country
Macro-segmentation – screening business opportunities
Factors to consider in the country profile:
o the size of the economy as measured by Gross National Income (GNI);
o income levels, as measured by GNI per capita;
o income distribution and the identification of market segments;
what proportion of the population receives what percentage of income?
o personal consumption patterns; tastes and expenditure on particular goods and services;
o economic growth rates and stability patterns;
o population: total size; density; geographical distribution; growth rates; age structure;
educational and literacy levels, and so forth;
human capital – amount of educated and able people in a nation
o sectors of the economy: the growth or decline patterns relating to primary, secondary and
tertiary economic activity;
o inflationary trends;
o infrastructure – amount of assets to facilitate and support economic activity
o extent of foreign debt, and balance of payments trends;
o exchange rate levels: policies and possible trends;
o the structure of banking and financial markets and availability of funds;
o the taxation system, especially as it relates to foreign businesses;
o the fiscal and monetary policies being pursued: budget balances, money supply and interest
o government ideologies and practices: extent of central planning and control;