Economic and
Socioeconomic Forces
Module 7
Jerroll Baxa
LEARNING OBJECTIVES
01 02
Explain the purpose of Compare different categories of
Economic Analyses countries, based on levels of
national economic development
03 04
Discuss the socioeconomic
Outline the dimensions used dimensions of economies and
to describe the economy and the inidicators used to assess
their indicators them.
International
Economic Analyses
Economic Forces are among
the most significant
uncontrollable forces in the
external environment
businesses face.
When a firms enters overseas markets, economic
analyses become more complex because now
managers must operate in two new environments:
• The Foreign Environment includes all the
uncontrollable forces originating outside the
home country that surround and influence the
firms. There are many countries instead of one
and they can very different.
• The International Environment includes the
interactions between domestic and foreign
environmental.
Levels of Economic
Development
Level of Economic Development
• A nation’s level of economic development affects all
aspects of business conducted there, and international
managers encounter markets with widely differing levels
of development. One measure frequently used by
economists and others is Gross Domestic Product.
• Gross Domestic Product (GDP)
- The total monetary value of all goods and services products
within a nation.
Level of Economic Development
• Gross National Income (GNI)
-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.
Developing Economics
- A classification for the world’s lower-income nations, which
have less technically developed infrastructures and lower
living standards
Level of Economic Development
• Developed Economies
- A classification for high-income
industrialized nations, which have high
living standards and the most technically
developed infrastructure
Characteristics of Developed and
Developing Economies
• Emerging Market Economies
-economies with per capita incomes in the
low to middle range that are in a transition
Measuring The Economy
Gross National Income (GNI)
As mentioned earlier, GNI is a measure of the
total value of all income generated by the
residents of a nation, including both the
domestic production of goods and services and
income generated from abroad, mainly
through dividends and interest payments,
minus similar payments made to other
countries.
Converting GNI to a Common Currency
and Purchasing Power Parity
Purchasing Power Parity (PPP)
- A mean of adjusting the
exchange rates for two
currencies have equivalent
purchasing power.
Modifying GNI with the Atlas
Conversion Factor
• Atlas Conversion Factor
-The arithmetic average of the current exchange
rate and the exchange rates in the two preceding
years, adjusted by the ratio of domestic inflation to
the combined inflation rates of the euro zone,
Japan, the United Kingdom and the United States.
Accounting for the Underground or
Informal Economy
• Underground Economy
-The part of nation’s income that, because of un
reporting or underreporting, is not measured by
official statistics.
Economic Growth Rate
• Data such as overall GNI or GNI per
capita can provide a snapshot of the
size of an economy, but they fail to
inform a manager about whether and
how fast an economy is growing. or
perhaps even shrinking. As a result,
most seasoned managers supplement
their analyses
Income Distribution
• Income Distribution
- A measure of how a nation’s income is
apportioned among its people.
• GINI Index
- A measure of the degree to which income
within a country is distributed equally
Private Consumption
• Disposable Income
-their after-tax personal income between
purchases of essential and nonessential
goods.
• Discretionary Income
- Is the amount left after paying taxes
and making essential purchases
Unit Labor Costs
• Unit Labor Costs
- Is the total direct labor costs by units
produced.
What are the reasons for the changes
in Labor costs?
• Three factors are responsible:
Compensation, productivity, and exchange rates.
Hourly compensation tends to vary more widely
than wages because of differences in fringe
benefits.
Unit labor costs will not rise in unison with
compensation rates if gains in productivity outstrip
increases in hourly compensation. In fact, if
productivity increases fast enough, the unit costs of
labor will decrease even though the firm is required
to pay workers more.
Vertical Integration
A nation's available foreign currency, known as foreign
exchange, needs to be available to businesses to pay for
imports billed in foreign currency. If a major part of the
foreign exchange cannot be used to import components
for local products, then either local industries must
manufacture the components or the companies that
import them must stop production.
Vertical Integration
- The production by a firm of inputs for its own
manufacturing process.
Total Population
• Total population, the most
general indicator of potential
market size,
-Is the first characteristic of the
population that analysts examine.
Population sizes vary immensely.
Age Distribution
• Many forces are responsible for reductions in birthrates.
Governments are supporting family planning programs, to be
sure, but there is sample evidence that improved levels of health
and education along with an enhanced status for women, a
more even distribution of income, and a greater degree of
urbanization all act to reduce the traditional family. In fact,
experts have claimed for some time that the combined effects of
a successful family planning program and the education of
women beyond the primary level are extremely powerful in
reducing family size.
Population Density and Distribution
• Population Density
- A measure of the number of inhabitants per area unit
(inhabitants per square kilometer or square mile)
• Population Distribution
- A measure of how the inhabitants are distributed over a
nation’s area.
• Rural-to-Urban Shift
- The movement of a nation’s population from rural areas to cities
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