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Lecture 4

GMS522 Week 4.docx

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Ryerson University
Global Management Studies
GMS 522
Carlyle Farrell

GMS week 4 Week 3 review Which is not a form of protectionism (d) cultural distance Which model could be used to explain int trade flows a) hecksher ohlin The theory of comparative adv argues that in trade is a a) positive sum game Economic Environment  The economic environment is an uncontrollable variable for the global marketer  Dealing with variables such as o Interest rates o Inflation o Exchange rates  These variables affect the demand for importing products  The economic environment has significant impact on: o The selection of countries for foreign market entry o The firms local market strategy in the foreign country  In assessing foreign markets we need to examine o Market size:  Population is an indicator of market potential.  Demand for imported products is linked to population size. o Income levels  Represents purchasing power and is a good indicator of market potential for most products  The two most populous countries (China and India) have low income levels, compared to industrialized countries (us & Germany)  Income distribution is also important!!!  Is the income in the country equally divided amongst the citizens or is there a clear distinguishing factor. o Exchange Rates  Impacts the demand for imported goods and services  Is the currency is weak; more of the local currency will be needed to finance imports.  For global marketer exchange rates stability is more important than the absolute value of the exchange rate  Always compare the national incomes of countries using PPP (purchases power parity) exchange rates  PPP is defined as the number of units of a foreign country’s currency required purchasing an identical basket of goods and services in the local country. o Consumption Patterns  The share of income that is spent on necessities/luxury goods o Infrastructure  Global marketers rely heavily on services p
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