Incoterms 2010 and International Business - 101
International Business: Environments and Operations, 15e (Daniels et al.)
CHAPTER FOUR: THE ECONOMIC ENVIRONMENTS FACING BUSINESSES
CHAPTER FOUR: THE ECONOMIC ENVIRONMENTS FACING BUSINESSES
OPENING CASE: THE COMEBACK ACCELERATES [See Map 4.1. and Figure 4.1]
Despite far-ranging opinions, most agree that the ongoing integration of national economies into the global market has changed economic aspects of the business environment. Some commentators see trends that indicate a flattening of the world, where others emphasize the entry of billions of people into the global marketplace from China, India, and the former Soviet countries. These developments and trends will powerfully impact one’s job, company, future, and even one’s country. The global economic meltdown impacts the business environment in many ways, including an increase in trade barriers and risk aversion. As the global economy improves, many see this as an inflection point and realize that the need to understand the economic impacts on the global business environment is more important than ever. Studies predict a shift from the rich and powerful countries of the twentieth century to many emerging economies in greater Asia. This shift can be seen as we track the global economic output. [See Fig 4.1] All of these changes represent opportunities and threats for global players in the new economy.
Questions
4-1 Transformations such as the Comeback happen quite rarely. Their infrequency, however, only amplifies their revolutionary impact on our lives. Identify from the case how your life has changed, or will likely change, given the comeback of emerging economies. For a point of comparison, think about what you have learned through your studies about how the transition from the Agrarian to the Industrial Revolution changed the way people changed their lives.
Student responses to the initial question can differ based on personal experiences. Companies are finding out that population growth and rising Gross National Products and per capita income are creating new markets for their products, which in turn increase job opportunities for individuals.
4-2 Identify from the case the three most important factors that you believe drive the comeback of emerging economies. Explain why you think they would have the greatest impact on the development, performance, and the potential of the economic environment in a developed country such as Germany, Japan, or the United States.
Advances in institutions, communication, and technology have fundamentally changed the economics of globalization. High-quality information and communication technology infrastructure are essential for emerging nations to achieve rapid economic growth. As these emerging markets grow, new markets for the products of developing countries open, which in turn create trade and investment opportunities.
CLOSING CASE: BRICs: Vanguard of the Revolution
The BRIC is an acronym that refers to the countries of Brazil, Russia, India, and China, which are all deemed at a similar stage of newly advanced economic development. The acronym is used as a symbol of the shift in global economic power from the developed economies to the developing world. The BRIC countries account for a quarter of the world’s land area, more than 40% of the world’s population and generates about 30% of the world’s GDP.
The BRICs are much larger in scale and scope than other emerging markets. They are indicators of consumption patterns, investment policies, and social trends. They are presumed by many to be vanguards of the revolution; where they go, both good and bad, others will follow. This case profiles the emergence, highlighting implications to the global marketplace, and closing by identifying looming threats.
Questions
4-3 Estimate the likely market evolution of the BRICs over the next decade. What economic indicators might companies monitor to best guide investments and actions?
The BRICs report a rapidly growing economy. Consumer demand starts to increase when GNI per capita is between $3000 and $10,000. When adjusted for purchasing power, all four countries have crossed the threshold, giving rise to the size of the middle class in these nations. It is predicted that the number of people in BRIC nations earning over $15,000 may reach 200 million by 2025. This indicates increased demand will not be restricted to basic goods but also impact higher-priced goods as well. (LO: 5, Learning Outcome: To profile indicators of economic development, performance, and potential, AACSB: Analytical Skills)
4-4 Identify three implications of the emergence of the BRICs for careers and companies in your country.
China and India will become the dominant suppliers of manufactured goods and services, while Brazil and Russia will become significantly dominant as suppliers of raw materials. Also, due to lower labor and production costs, many companies also cite the BRIC as a source of foreign expansion opportunity. As sales, growth labor, and executive opportunity migrate from the west to these BRIC countries, you can also expect a change in the geography of expatriate assignments and activities. (LO: 5, Learning Outcome: To profile indicators of economic development, performance, and potential, AACSB: Reflective Thinking)
4-5 Do you think recency bias has led to overestimating the potential of the BRICs? How would you, as a manager for a company assessing these markets, try to control this bias?
Recency bias, as it relates to the BRICs is the delusion that current economic trends will continue indefinitely and uninterrupted. Invariably, economic growth rates slow down as the base of activity expands. Each of the BRICs will struggle, however, since Brazil, Russia, India, and China have changed their political systems to embrace global capitalism; even with the occasional downturn they could still be among the four most dominant economies by 2050. (LO: 5, Learning Outcome: To profile indicators of economic development, performance, and potential, AACSB: Analytical Skills)
4-6 How might managers interpret the potential for their product in a market that is, in absolute economic terms, large, but on a per-capita basis, characterized by a majority of poor consumers?
With the prediction of the massive rise in size of the middle class in these nations, it would indicate that a large pickup of demand will not be basic goods but also impact higher-priced goods as well. (LO: 5, Learning Outcome: To profile indicators of economic development, performance, and potential, AACSB: Analytical Skills)
4-7 In the event that the BRICs fail to meet projected performance, what would be some of the implications for the international business environment?
The emergence of the BRICs signals that the next phase of the global economy has begun. And even if the BRICs fall short of their potential, their successes will redefine the structure of economic environments, patterns of growth, and dynamics of economic activity. (LO: 5, Learning Outcome: To profile indicators of economic development, performance, and potential, AACSB: Analytical Skills)
4-8 Compare and contrast the merits of GNI, Net National Product, and Your Better Life Index as indicators of economic performance in Brazil, Russia, China, and India.
As the rate of growth in the GNI/capital increase, it becomes more important for marketers because the growth rates serve as an indicator of a fast-growing market. NNP is the amount of goods that can be consumed without reducing future consumption. Setting part of the NNP aside for investment permits economic growth and capital formation and greater future consumption. Your Better Life Index is a tool that allows people to compare a country’s performance according to their preferences in terms of what makes a better life. It includes 11 dimensions of well-being: Housing, Income, Jobs, Community, Education, Environment, Governance, Health, Life Satisfaction, Safety, and Work Balance. The BLI seeks to engage citizens in the discussion of what matters in their lives and what governments should do to improve well-being. (LO: 5, Learning Outcome: To profile indicators of economic development, performance, and potential, AACSB: Analytical Skills)
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