INTERNATIONAL BUSINESS

Economic Enivornment Facing Business

Submitted to: prof sandeep sawant

What is economic enviornment

Those Economic factors which have their affect on the working of the business is known as economic environment. It includes system, policies and nature ofaneconomy, trade cycles, economic resources, level of income, distribution of income and wealth etc. Economic environment is very dynamic and complex in nature

Principal Factors
Government: - Level of governance - Law and order situation Monetary factors Fiscal factors Social factors

Macroeconomic factors
How open is the economy Attitude of the government towards business Overall GDP growth Employment situation Balance of payments situation

10/16/2012

Elements of the Economic Environment

Gross National Income (GNI) Gross National Product (GNP) Gross domestic product (GDP)

Economic Indicators 06-10 avg. GDP (% growth, real) Inflation (%, year-end) Fiscal Balance (% of GDP) 8.4 8.8 -4.6 2010 8.8 12.0 -5.1 2011 7.5 7.0 -5.6 2012 (exp) 7.6 5.5 -5.0

Exports (% growth)
Imports (% growth) Current Account (% of GDP) External Debt (% of GDP) Currency (per USD, year-end)

18.9
20.3 -1.8 16.7 44.7

34.1
30.3 -3.0 14.6 44.8

32.2
26.1 -3.2 13.7 52

16.5
13.3 -2.5 12.3 ---

Features of an Economy
Inflation Unemployment Debt Income distribution Poverty Labor costs Productivity Balance of payments

Inflation
Cost of Living Implications of Chronic Inflation Price Indexes & Measurement Problems Deflation

4-8

Unemployment
Problems in Measuring Variation in Public Support The Pension Problem

Debt
Internal Debt: Portion of the government debt that is denominated in the countrys own currency and held by domestic residents External Debt: Debt owed to foreign creditors and denominated in foreign currency.
4-10

Income Distribution
Gini Coefficient Urban vs. Rural Income Inequality

4-11

Poverty
World Bank Definition Poverty and the Economic Environment The Potential of the Poor
Bottom of the Pyramid Phenomenon

4-12

Labor Costs
Labor and Total Costs For many goods and services, the cost of labor is a key element of total costs. Consequently, companies scan the world, looking for markets that offer lower-cost labor.

4-13

Productivity
Productivity measures the efficiency with which products are produced.

4-14

Balance of Payments
Current and Capital Accounts
Current Account: tracks all trade activity in merchandise Capital Account: tracks both loans given to foreigners and loans received by citizens

BOP and Economic Stability

4-15

Components of a Countrys Balance of Payments

4-16

Economic System
A mechanism that deals with the production, distribution, and consumption of goods and services Types:
Market economy Command economy Mixed economy

Improving the Power of GNI

Per Capita Conversion Rate of Change Purchasing Power Parity Degree of Human Development Green Measures

Balance of Payments
Current and Capital Accounts
Current Account: tracks all trade activity in merchandise Capital Account: tracks both loans given to foreigners and loans received by citizens

BOP and Economic Stability

Examples of Sectoral Guidelines

Sector/ Activity Airports Greenfield Airports - Existing Scheduled Air transport services Mining Banking Pvt. Sector Defence Production Insurance FDI Cap/ Equity 100% 100% Sector/ Activity Floriculture, Horticulture, etc. FDI Cap/ Equity 100%

40% - FDI, 100% Power (excl. atomic 100% - NRI energy) 100% 74% (FDI + FII) 26% 26% Coal & Lignite Drugs & Pharma NBFCs 100% 100% 100%

Refining (petroleum 49% - PSUs, & natural gas) 100% -Pvt.

Wholesale/ Cash and carry trading Special Economic Zones

100% 100%

Newspapers Telecommunication Services

26% 74% (incl FDI,FII,NRIs,etc)

Means of Economic Transition

Liberalizing economic activity Reforming business activity Establishing legal and institutional frameworks Success is linked to how well the government deals with:
Privatization Regulation Property right protection Fiscal and monetary reform Antitrust legislation

Dimensions of The Economic Freedom Index

Business freedom Trade freedom Monetary freedom Freedom from government Fiscal freedom Property rights Investment freedom Financial freedom Freedom from corruption Labor freedom

CASE STUDY

Important factors to consider

India

China

Mexico

Brazil

Russia

Poland

Democracy

Democracy (lack of) Good Business Environmen t Growth

Good Business Environment Economy

Economy

Trade

Democracy

English Language

Good Business Environment

Economy

Good Business Environment

Innovation

Democracy

Good Business Environment

Huge Population

Trade

Key Industrial Sectors in countries