Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                

LO3-4 Chap4

Download as pdf or txt
Download as pdf or txt
You are on page 1of 17

DIMENSIONS OF THE ECONOMY

AND
THEIR RELEVANCE FOR
INTERNATIONAL BUSINESS
Presented by Group 5
Overview
LO3: Describe the economics and socioeconomic dimensions
and indicators used to assess them
LO4: Discuss the importance of a Nation's consumption
patterns and the significance of purchasing power parity

Our team
Nguyễ n Thị Phương Thảo Trầ n Nguyệt Hằ ng
Trầ n Thị Cẩm Hà Lê Thị Huyề n
Dương Thu Hà
DIMENSIONS OF
ECONOMY
01 Gross National Income

02 GNI/capita

03 Underground Economy

04 Currency Conversion

05 The Atlas Conversion Factor

06 Income Distribution

07 Private Consumption
Group5
ECONOMIC
DIMENSIONS
1.Gross National Income

To compare the purchasing power of


nations, managers need to know how
many people GNI is divided among
2. GNI/ CAPITA
From the data of the World Bank,
Denmark is far richer than India:
GNI/capita is $52,110 in Denmark
versus $820 in India.

Although India’s economic pie is more than 3 times as big as


Denmark’s, there are more than 210 times as many people to eat
it.

Managers will prioritize to invest in a nation with a lower


GNI/capita but a high growth rate among nations
3.Underground Economy

1 The part of the national income that, because of unreporting


or underreporting, is not measured by official statistics

Consists of undeclared legal production, production of illegal


2
goods and services and concealed income in barter.

The higher the level of taxation and the more oppressive the
3
government red tape, the bigger the underground will be.

In addition to reducing the total taxes, the underground


economy can result in distortions of economic data
4. Currency Conversion

Purchasing power parity (PPP): the number


of units of a currency required to buy the
same amounts of goods and services in the
domestic market that one dollar would buy
in the US
EXAMPLE
The use of official exchange rate The use of PPP rate

Suppose Thailand reports its


GNI/capita for last year is 93,624
baht/capita. If the current exchange
rate is 37.6 baht/ $1

=> Thailand’s GNI/ capita is 93,624/ In Thailand, 1,235 baht buys what
37.6 = $2,490 $107.85 buys in US
=> 1,235 baht/ $107.85 = 11.45 baht/ $1
=>Thailand’s GNI/ capita is 93,624/
11.45 = $8,177
Comparisons based on PPP result in GNI/capita value are considerably
higher than those regularly given for developing nations and lower for
many developed nations.
5. The Atlas Conversion Factor

PPP + Conversion: using official exchange rates=> Dissatisfied

Atlas Conversion factor is the arithmetic average of the current


exchange rate and the exchange rates in the two previous years
adjusted by the ratio of domestic inflation to the combined inflation
rates of the eurozone, Japan, the United Kingdom, and the United
States.
5. The Atlas Conversion Factor
Results measured by the Atlas Conversion

Changes in income
Incomes
rankings

More stable over time Due to relative economic performance


(not the fluctuations in the exchange
rate)
6. Income Distribution

What is the income distribution?

Income distribution is a measure of how a


nation’s income is apportioned among its people,
commonly reported as the percentage of income
or consumption received by population quintiles.
6. Income Distribution
The data provide useful insights for business:
1. Income is more evenly distributed in the richer
nations.
2. Income redistribution proceeds very slowly
-> older data are still useful.
3. Income inequality increases in the early stages
of development, with a reversal of this tendency in
the later stages.

EG: China's economy skyrockets -> the number of


truly poor people grew by 800.000 to nearly 85
million in 2004
6. Income Distribution
Depending on the type of product and the total
population -> may represent market opportunities.

Eg: Costa Rica’s GNI was 43 billion$ in PPP


terms: just 20% of the population receives more
than 53 % of that income

A sizeable group of people are potential


customers for low-volume, high-priced luxury
products.

By contrast, a smaller group of population (4.1


million) are potential customers for low-priced
goods with high sales volume.
7. Private Consumption

Private Consumption (also called personal consumption


or consumer expenditure) is personal (mainly household)
spending on goods and services. They use their
disposable income (after-tax personal income) between
purchases of essential and nonessential goods

While manufacturers of household durables will want to


know the amounts spent, the producers of nonessentials
will focus on the magnitude of discretionary income.

Discretionary income is the disposable income after


making essential purchases.
7. Private Consumption

Based on PPP, marketers can analyze how


consumption changes with the level of
development.
Eg:
Developing nations are double on food and
clothing than the industrialized nations.

Developed nations have twice the percentages of transport and


communication, consumer durables, health care, and other
consumption than the developing nations.
7. Private Consumption

International business managers also never


underestimate the importance of every small
percentage difference among nations.

If American consumers had spent 1% more on


clothing -> this would have amounted to
$43,740 x 1% x 296 million people = $129.5
billion more in sales for the clothing industry.
Presented by Group 5

Thank you
very much!

You might also like