MGMT1101 Lecture 6: MGMT1101 Week 6
Week 6: Does size matter: The economic environment
1. Identify and interpret dimensions that describe the economic environment of a country
Economic endowments- natural and created
A firm’s preliminary assessment of a country’s potential as either a location for production or a
market for a firm’s product should consider its economic advantages (‘endowments’):
Natural endowments are those not directly created or driven by human achievement
Size
• General measures of an economy’s size are its population and level of
national income + production. i.e. size = market potential
o GNI (Gross National Income): value of income of residents (regardless
of whether income is earned in the domestic or foreign market)
o GDP (Gross Domestic Product): measures value of production and
income earned from production in domestic market only
o Per capita income = divided by population
Geography
• Natural resources and features affect level and pattern of market demand
and production and include:
o Climate
o Topography
o Distance
• A country’s location (either geopolitical or geographical) can help or
hinder business, in terms of its proximity to challenges and opportunities
People
• Refers to characteristics of a population i.e. size and growth
• Population distributions according to age, gender and location provide
general indicators to potential market size for a firm’s product
• Rising GNI per capita: growing market for a firm’s product
• GNI does not indicate HOW income is distributed
• Population is a natural endowment in the short term but can be affected
by policy in the longer term.
• Socioeconomic characteristics (distributions of income, education and
occupation) help identify size of the population segment relevant to a
firm’s potential market for a particular product. These are affected by
policy.
• Human Capital: skilled and educated population (outcome of investment
in education and training)
• Education is important in determining economic development
• Development should be assessed less by material output and more by
capabilities and opportunities that people enjoy
o Human Development Index (HDI): life expectancy, education
attainment and whether average incomes are sufficient to meet basic
needs of life in a country
Infrastructure +
Institutions
• The created assets of an economy that facilitate economic activity incl.
physical structures such as transport, energy and communication systems
• Financial and legal systems may be regarded as commercial infrastructure
of an economy
o Rule of law is essential in operation of financial institutions
o Components of an effectively functioning financial sector incl.
financial disclosure laws, accounting standards, accredited financial
advisers and brokers, and a financial press
