BSB119 - Lecture 3 Notes

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Queensland University of Technology
Management and Human Resources

1 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. Focus Questions  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 economy);  SIZE – Gross National Income (GNI): total value of income accuring to a nation’s residents 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 industries; and o the level of economic activity, with reference to inflation, unemployment and the balance of payments. 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 economies. Market Economy  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 Economy  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 rate policies; o government ideologies and practices: extent of central planning and control;
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