Chapter 9 International Business

Front 1

Examples of emerging market economies

Back 1

some 27 countries in East and South Asia, Latin America, Middle East and Eastern Europe- including Brazil, Russia, India, China (so called BRIC countries)

Front 2

Subset of former developing economies that have achieved substantial industrialization, modernization, improved living standards and remarkable economic growth

Back 2

Emerging market economies

Front 3

Post-industrial countries characterized by high per capita income, highly competitive industries, and well-developed commercial infrastructure

Back 3

Advanced economies

Front 4

Examples of advanced economies

Back 4

Australia, Canada, Japan, New Zealand, the United States, and Western European countries

Front 5

Low-income countries characterized by limited industrialization and stagnant economies

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Developing economies

Front 6

Examples of developing economies

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Low-income countries, with limited industrialization and stagnant economies- e.g. Bangladesh, Nicaragua and Zaire

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Mature state of industrial development; transitioned from manufacturing economies into service-based economies

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Advanced economies

Front 8

Democratic, multiparty systems of government

Back 8

Political Systems

Front 9

Typically based on capitalism, with relatively little government intervention in business.
Serious purchasing power; few restrictions on international trade and investment

Back 9

Economic Systems

Front 10

Low discretionary incomes, limited proportion of personal income spent on purchases other than food, clothing, and housing

Back 10

Developing economies

Front 11

Hindered by high infant mortality, malnutrition, short life expectancy, illiteracy, and poor education systems; correlates with economic development, the vicious cycle of poverty

Back 11

Developing economies

Front 12

Much of government policies that discourage entrepreneurship, trade, and investment. Example- starting a new business

Back 12

Bureaucracy

Front 13

Most distinguishing characteristic- countries are enjoying rapidly improving living standards and a growing middle class with rising economic aspirations

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Emerging market economies

Front 14

Privatization of former state enterprises- since 1989 after transition from centrally planned economies into liberalized markets

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Transition economies

Front 15

Czech Republic, Hungary, and Poland; also China and Russia.

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Liberalized markets

Front 16

Engaged in large-scale privatization of state-owned enterprises

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Transition economies

Front 17

Excellent targets for manufactured products, technology, and sophisticated technology

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Emerging markets

Front 18

What makes emerging markets attractve?

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1. Emerging Markets as Target Markets
2. Emerging markets as manufacturing bases
3. Emerging markets as sourcing destinations

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Procurement of selected value-adding activities, including production of intermediate goods or finished products, from independent, external suppliers. Helps foreign firms become more efficient, concentrate on their core competences, and obtain competitive advantage

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Outsourcing

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When sourcing involves foreign suppliers or production bases

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Offshoring

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refers to the procurement of products and services from foreign locations. Procurement can be from either independent suppliers or company-owned subsidiaries

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Global Sourcing

Front 22

Three practical approaches firms employ in assessing market potential of individual countries are

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1. Per-capita income
2. Size of middle-class, and
3. A mix of market potential indicators

Front 23

In relying on per capita GDP for comparison of different countries, one should use

Back 23

purchasing power parity exchange rates, rather than the market exchange rates

Front 24

Provides a more realistic indicator of purchasing power of consumers in emerging and developing economies

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Purchasing power parity adjustment

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More accurately represents the amount of products that consumers can buy in a given country, using their own currency and consistent with their own standard of living.

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PPP adjusted per capita GDP

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Several times larger than per-capita income because of multiple wage earners in these countries.

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Household income

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Governments in these countries may under-report national income so they can

Back 27

qualify for low-interest loans and grants from international aid agencies and development banks

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Economic transactions that are not officially recorded and therefore left out of government calculations of a nation's GDP, e.g. barter exchanges

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Informal economies

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Represents the proportion of people in between the wealthy and the poor, has economic independence and consume many discretionary items, including electronics, furniture, automobiles, recreation, and education

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Middle Class

Front 30

the size and growth rate of the middle class serve as signals of a dynamic market economy

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Emerging markets

Front 31

Demographic trends indicate that, in the coming two decades, the proportion of middle-class households in emerging markets will become

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Much bigger, with enormous spending power

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In relative terms, who has made the most progress towards building a sizable middle class?

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South Korea

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The country’s population, especially urban population

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Market size

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The country’s real GDP growth rate

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Market growth rate

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Private consumption and GNI represent discretionary expenditures of citizens

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Market Intensity

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The percentage share of income held by the country’s middle class

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Market consumpiton capacity

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Characteristics such as number of mobile phone subscribers, density of telephone lines, number of PCs, density of paved roads, and population per retail outlet

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Commercial infrastructure

Front 38

The degree of government intervention

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Economic freedom

Front 39

The particular country’s inclination to trade with the exporter’s country as estimated by the volume of imports

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Market receptivity

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The degree of political risk

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Country Risk

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A large, privately-owned company that is highly diversified, and control economic activity and employment in emerging markets

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Family conglomerate

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Provide huge tax revenues and facilitate national economic development

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Family conglomerates

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Enjoy various competitive advantages in their home countries, such as government protection and support, extensive networks in various industries, superior market knowledge, and access to capital

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Family conglomerates

Front 44

Hyundai’s advantages were overwhelming to foreign automakers

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Exaple of a family conglomerate

Front 45

Government agencies (buyer) seeking bids from suppliers to procure bulk commodities, equipment, and technology or to build power plants, highways, dams, and public housing

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Request for proposals (RFPs) or tenders