Chapter 7: Economic and Socioeconomic Forces Flashcards
T or F: Economic analyses for multinationals is more complex than those for a purely domestic firm.
True (have to deal with different currencies, legal systems, different religions, different distribution networks, etc.; there are many economies to consider instead of just one, there are interactions between them, and values are highly divergent.)
What is the purpose of doing economic analyses for multinationals?
Assess the overall outlook for the economy and the impact of economic changes on the firm
(need to try and get accurate information about the country; is easier said than done bc some countries are going to try to paint a rosy picture of themselves; Greece example about them going bankrupt but presenting the wrong numbers to other countries creditors and stuff))
Economic analyses for multinationals should include economic data on _______ and _______ markets.
actual; prospective
includes all the UNCONTROLLABLE forces originating outside the home country that surround and influence the firm
foreign environment
You can measure the strength of a country through a number of financial indicators. They are not perfect. One of the biggest mistakes people make is they look at the GNI or GDP for a PARTICULAR YEAR. Why would this be a big mistake?
There could be something that took place that year that distorts the statistics. So, you need to look at the TREND.
the total monetary value of all goods and services produced within a nation.
Gross Domestic Product (GDP)
the total value of all income generated by the residents of a nation, including both the domestic production of goods and services and income from abroad.
Gross National Income (GNI)
High income economies have a GNI per capita of ________ or more (is considered high income).
$12,056
Middle income economies have a GNI per capita of over ________ but less than ________.
This can be further divided into Upper Middle Income Economies: have a GNI per capita of _______ up to _________. And Lower Middle Income Economies: have a GNI per capita over ________ up to _______.
- $995; $12,056
- $3,896; $12,055
- $996; $3,895
Lower income economies have a GNI per capita of _______ or less.
$995
Why can Gross National Income (GNI) be very misleading?
It refers to the average and the average person may not be willing to buy a certain product (ex: if you’re wanting to sell ferraris in Sedan, and you look at the GNI, it’s extremely poor. But, there are people in this country who are wealthy)
a classification for the world’s lower-income nations, which have less technically developed infrastructures and lower living standards.
Developing Economies
a classification for high-income industrialized nations, which have high living standards and the most technically developed infrastructures.
Developed Economies
Developed economies have a per capita GNI of _____ or more (World Bank Criterion).
$12,056
Developed or developing economies:
A high material standard of living, high quality of life index, and a substantial middle class.
Developed economies
Developed or developing economies:
A very small share of total output coming from agriculture and a declining share for manufacturing.
Developed economies
T or F: Developing economies have well-established government and legal systems.
False; DEVELOPED economies have this. (this important because it’s your protection (if you run into difficulty overseas and there’s a good, independent legal system, you can get a fair trial)
Do these things describe developing or developed economies?
1. Plentiful educational opportunities and low illiteracy.
2. A relatively unproductive agricultural sector that provides a living for most of the population.
3. Political instability and deficient governmental and legal systems.
4. Relatively low levels of unemployment or underemployment.
5. Adequate or high levels of nutrition and access to health care.
6. Technological dualism, meaning the presence of a mix of firms employing the latest technology and companies using very primitive methods.
7. Disguised unemployment or underemployment (two people do a job one person could do)
8. Inhospitable topography, such as deserts, mountains, and tropical forests.
- Developed
- Developing
- Developing
- Developed
- Developed
- Developing
- Developing
- Developing
Developing economies have a per capita GNI of LESS THAN _____ (World Bank Criterion).
$12,056
Developed or developing economy?
Moderate to low material standard of living and quality of life index, regional dualism reflecting a high productivity and incomes in some regions and little economic development in others, unequal distribution of income with a very small middle class.
Developing
Developed or developing economy?
Low savings rates, inadequate banking facilities and high dependence on a few products for export, generally agricultural products or minerals.
Developing (Problem with low savings rates: if there’s an emergency, you would have to borrow money. When you borrow, you don’t borrow at the best rate, so your disposable income will go towards paying the debt and interest on the debt.)
What are the 3 positive things that international companies look for when they invest?
- Subsidies
- Low cost of living
- Low wages
What non-economic variable should you take into account when investing in a foreign place?
Good education = good workforce
Measuring the size of an economy:
_____ measures the total value of all income.
GNI per capita indicates how ________ the economy is but should be used with caution.
- GNI
- advanced
A means of adjusting the exchange rates for two currencies so the currencies have equivalent purchasing power.
Purchasing Power Parity
The part of a nation’s income that, because of un-reporting or underreporting, is not measured by official statistics.
underground economy
T or F: Every country has an underground economy.
True
What are 3 examples of parts of the underground economy in the U.S.?
- Babysitting
- Drugs
- Prostitution
Underground economies includes undeclared production of _____ and _______ goods and services, their corresponding _______ (ex: money laundering), and concealed _______ in kind (barter).
legal; illegal; activities; income
What is one state in the United States that is extremely favorable for legally protecting your money through trusts?
Why do governments not like this?
- South Dakota (every state has to come up with a competitive advantage)
- They can’t tax it. (this is why governments don’t like underground economies)
The ______ _____ ______ is not what Gross National Income (GNI) is, but rather what’s happening to GNI (is it growing from year to year?).
Economic Growth Rate
T or F: GNI and GNI per capita only provide a snapshot of an economy.
True (so, managers should supplement their economic analyses by assessing economic growth rates as measures of an economy’s absolute size.)
In relation the a country’s economic growth rate, rapid and rising rates imply ______ _______.
consumer demand
A measure of how a nation’s income is apportioned among its people.
income distribution
(is very important; in many parts of the world, you have less than 1% of the population that controls over 90% of the wealth. )
A measure of the degree to which family income within a country is distributed equally; wide range around the world
GINI Index
What are two things that fall under the category of private consumption?
- Disposable income
- Discretionary income
after-tax personal income. (the money you have left after you pay taxes)
Disposable income
amount of income left after paying taxes and making essential purchases. (like paying for tuition, etc.)
Discretionary income
ownership of goods; consumption of key materials
Personal Consumption
T or F: The U.S. has the smallest size of shadow economies as a percentage of GDP in 2017.
True
What 3 countries have the largest size of shadow economies as a percentage of GDP in 2017?
- Bulgaria
- Turkey
- Croatia
Total direct labor costs divided by units produced.
unit labor costs (everything you have to pay on top of wages)
Low or slowly rising unit labor costs may indicate opportunity to lower _______ costs and may indicate locations of new _______ in world markets.
production; competition
Changes in ______ ______ may cause companies to change their international sources of supply.
wage rates
What are the 3 things labor costs are based on?
- Compensation
- Productivity
- Exchange Rates
Why are the Chinese interested in South Africa?
Africa is a rich continent (ex: diamonds, gold, etc.). The people are poor, but the continent is rich. The Chinese are interested in those materials. China’s strategy is to own those countries (getting them in debt to China so they have to give them the diamonds, etc. ; like a new form of colonialism)
Large and growing international debts of middle-and low-income nations cause problems for their ________ and for ________ ______.
governments; multinational firms
Large ______ ______ may hinder access to foreign currency to pay for imports billed in foreign currency, if such currency is being used to pay foreign debt, hindering access to raw materials, spare parts, and other inputs.
foreign debts
What are 3 examples of socioeconomic dimension of the economy that are relevant for international business?
- Total Population
- Age Distribution
- Population Density and Distribution
What is the most general indicator of potential market size, and the first characteristic of the population that analysts examine?
Total Population
T or F: Population size alone is a strong indicator of economic strength and market potential.
False; it alone is a WEAK indicator
Europe’s biggest challenge in regards to population: aging and declining population (Europeans aren’t having as many kids as other countries because kids are expensive). Issue with this → their workforce is decreasing, but there is a demand. So what do you do?
Immigration
Which countries population is expected to grow the most by 2050?
India
The distribution of age groups within populations vary widely, but (developed/developing) countries generally have younger populations than do industrial countries, due to higher ______ _____.
developing; birth rates
T or F: Many countries are experiencing a reduction in birth rates.
True
Early _______ and increased _____ ______ are straining social security systems.
retirements; life spans
a measure of the number of inhabitants per area unit (inhabitants per square kilometer or square mile).
population density
a measure of how the inhabitants are distributed over a nation’s area.
population distribution
the movement of a nation’s population from rural areas to cities.
rural-to-urban shift
3 Other Socioeconomic Dimensions that are relevant to international business:
1. Increase in the number of ______ ______ increases labor supply and creates larger family incomes.
2. _______ _______ indicate formation of single-parent families
3. _______ _______ may require special considerations
- working women
- divorce rates
- ethnic groups
T or F: The International Monetary Fund is a source of economic data that analysts can access to assess economic conditions.
True
T or F: The international environment includes all the uncontrollable forces originating outside the home country that surround and influence the firm
False; is the FOREIGN environment
T or F: International economic analyses should provide economic data on both actual and prospective markets.
True
The World Bank categories countries based on GNI per capita, using the following categories:
a. undeveloped economies, developing economies, developed economies.
b. developed economies, industrializing economies, developing economies.
c. developing economies, newly industrializing economies, developed economies.
d. high-income economies, middle-income economies, low-income economies.
d. high-income economies, middle-income economies, low-income economies.
The International Monetary Fund would characterize a developing economy as one in which:
a. technology is not as developed
b. political activism is tempered
c. there is a fair distribution of income
d. the economy is more dependent on agrarian production than manufacturing
a. technology is not as developed
When an international manager is considering where to do business, one of the first considerations is:
a. whether the country has a democratically elected government.
b. the dominant religion in the country.
c. the size of the economy.
d. whether the country has a manufacturing sector.
c. the size of the economy
Unrecorded transactions in an economy, such as goods and services that are bartered, are said to be part of which economy?
a. developing
b. forward
c. informal
d. developed
c. informal (underground economies)
GNI/capita, a crude estimate of purchasing power, must be further refined by:
a. an examination of the amount of income tax paid.
b. a census to determine the total population
c. incorporating data on how the national income is actually distributed
d. determining the amount of discretionary income
c. incorporating data on how the national income is actually distributed
A measure of the degree to which family income within a country is distributed equally is called:
a. gross national income
b. the GINI index
c. gross domestic product
d. the Atlas conversion factor
b. the GINI index
A business would rely on the GINI index to understand:
a. the growth rate in production of competitor industries
b. the degree to which family income is distributed equally within a country
c. the relationship between income and expenses in a nation
d. how industry is developed based on factors of endowment
b. the degree to which family income is distributed equally within a country
