Introduction

The impact of economic change has a variety of characteristics. Some are direct and clearly
linked to environments, companies, or competitors. Other exerts a subtle influence on a firms
activities and its ultimate performance.
The importance of economic environment from the fact of different countries has different level
of economic development, performance, and potential. For instance, in absolute terms, world
economic output more than tripled between 1975 and 2006, reaching $47 trillion. In relative
terms, many countries prospered but some more than others and in a few cases, some not at all.
Thus estimating the attractiveness of a country as a place to do business and then, once there,
making prudent investment and potential decisions depend on how well managers understand
economic performance and trends.
Globalization connects countries in many ways; change in one country likely has economic
consequences in other countries. Companies must also watch economic change in those countries
where they may not operate but where they are competitors do. Improving economic
performance or revised economic policies in a particular country, such as is happening in Brazil,
China, India, and Russia, may unexpectedly strengthen their rivals competitiveness.
Although the pace varies from country to country, national economic environments around
world are continually changing. We have seen over the past decade tremendous changes in
economic opportunities as more countries have adopted the principles and practices of free
markets. Indeed, a countrys economic policies give a clear indication of governments goals and
the economic tools and market reforms it must adopt. Managers aim to spot those small changes
in a countrys economic environment that promise to have big market impact.
Finally, economic development is a vital topic to citizens, managers, policymakers, and
institutions. The evident triumph of free market over controlled economies has spurred countries
to unleash ambitious economic programs. To degree, economic development efforts have helped
countries improve their standard of living. Then again, the bold development programs of some
countries have fallen short. A fuller understanding of the process of economic transaction and
development helps managers make better decisions that benefit their companies, their countries,
and the world.
Different countries have different economic development, performance, and potential. Managers
need to understand economic environments to predict trends that might affect their companys
performance. A countrys economic policies give a clear indication of the governments goals and
the economic tools and market reforms it must adopt.

Objectives
The objectives of economic environment are:
To describe and demonstrate the importance of the economic environment factor in
planning and carrying out global marketing.
To show the importance of the economic factor in global marketing
To describe and give an understanding of the major world regional economic blocs with
particular emphasis on developing countries
To specify the definitive set of economic indicators that precisely estimates the
performance and predicts the potential of a countrys economy.
To set of estimators, new challenges emerge when interpreting their relationship with
other elements of the economic environment.

Methodology
This Assignment is about the Economic environment of International Business. To complete
this assignment I used all the data mainly from secondary sources.

Primary Sources:

No primary data
Secondary source:
Text book of International Business
Internet based information
Articles

Main Discussion of the Economic Environment

Economics: The theories, principles, and models that deal with how the market process works.
It attempts to explain how wealth is created and distributed in communities, how
people allocate resources that are scarce and have many alternative uses, and other
such matters that arise in dealing with human wants and their satisfaction.
Environment: The sum total of all surroundings of a living organism, including natural
forces and other living things, which provide conditions for development and growth as well as
of danger and damage. See also environmental factors.
Economic Environment: The economic environment consists of external factors in a business'
market and the broader economy that can influence a business. You can divide the economic
environment into the microeconomic environment, which affects business decision making such as individual actions of firms and consumers - and the macroeconomic environment, which
affects an entire economy and all of its participants. Many economic factors act as external
constraints on your business, which means that you have little, if any, control over them. Let's
take a look at both of these broad factors in more detail.
The global economic turmoil that has permeated both developed and emerging markets has
begun to abate in some areas, though the stage of recovery is still the subject of dispute among
academics, analysts, and market participants. The stock and transaction market decline and
related credit crunch beginning in 2007 rippled through developed and emerging markets. The
contraction of private equity transactions also softened capital markets and certain volatility and
fluctuations of markets rivaled that of any period since the Great Depression.
Review some of the unique challenges facing valuation and damages experts as a result of the
recent global economic crisis; it may be helpful to briefly revisit some basic principles. We shall
summaries briefly the difference between the but for and actual scenarios before explaining
how these might be impacted by the crisis. We will then discuss the main approaches and
methodologies for calculating damages, in particular the impact upon the fair market value
standard, as well as the three main valuation approaches; the market, income and cost
approaches.

Key economic forces include

Price stability: The situation whereby the prices of goods and services offered in
the marketplace either change very slowly or do not change at all. Factors affecting this
include employment and inflation.

Capital Markets:
A financial market that works as a conduit for demand and supply of debt and equity capital.
It channels the money provided
by
savers
and depository
institutions (banks, credit
unions, insurance companies, etc.) to borrowers and investees through a variety of financial
instruments (bonds, notes, shares) called securities.
Factor endowments:
Number of labors, land, money and entrepreneurships that could be exploited for
manufacturing within a country. Countries with large factor endowments are often financially
better off than countries with less factor endowment.
Market size:
The number of individuals in a certain market who are potential buyers and/or sellers of
a product or service. Companies are interested in knowing the market size before launching
a new product or service in an area.
Public Policy:
State objectives related to the health, morals, and well being of the citizenry. In the interest of
public policy, legislatures and courts seek to nullify any action, contract, or trust that
goes counter to these objectives even if there is no statute that expressly declares it void.

Elements of the Economic Environment

Manages use many different measures to assess a countrys level of economic performance and
potential. Some may be informal indicators like of telephones or circulation patterns of
newspapers in a country.

Gross National Income (GNI): the income generated both by total domestic production
as well as the international production activities of national companies

Gross National Product (GNP): the value of all final goods and services produced within
a nation in a given year, plus the income earned by its citizens abroad, minus the income
earned by foreigners from domestic production.

Gross domestic product (GDP): the total value of all final goods and services produced in
a country in a given year equal to total consumer, investment, and government spending,
plus the value of exports, minus the value of imports.

Improving the Power of GNI

The Gross National Income (GNI) comprises the total value of currently produced final goods
and services produced by the domestic economy of a country, measured within a given period of
time, usually a year. (a close value is Gross National Product (GNP).
Per Capita: A measure of the total output of a country that takes the gross domestic product
(GDP) and divides it by the number of people in the country. The per capita GDP is especially
useful when comparing one country to another because it shows the relative performance of the
countries. A rise in per capita GDP signals growth in the economy and tends to translate as an
increase in productivity.
Rate of Change: Expressed as a ratio between changes in variables over a specific period of
time. Can be represented graphically with the slope of a line, or illustrated with the
Greek letter delta. Stock traders rely on the speed of change of one stock price relative to
another stock's price.
Purchasing Power Parity: Is a method of measuring the relative purchasing power of different
countries currencies over the same types of goods and services, despite differential rates of
inflation. PPP allows making more accurate comparisons of standards of living across countries,
because goods and services may cost more in one country than in another.
Degree of Human Development: GNI including its expression in terms of per capita, growth
rate, and PPP, profiles growth and development in an economy. Some argue that these indicators,
by focusing on growth only as measured by monetary indicators, misrepresent the scale and
scope of a countrys level of development.
Beginning in 1990, the United Nations has translated this view into its Human Development
Report and its principal indicator, Human Development Index (HDI).
Specifically, the HDI measures the average achievements in a country on three dimensions:

Longevity, as measured by life expectancy at birth.

Knowledge, as measured by the adult literacy rate and the combined primary, secondary,
and tertiary gross enrollment ratio.
Standard of living, as measured by GNI per capita expressed in PPP.

HDI aims to capture long-term progress in human development, rather than short-term change.
Green measures of GNP: Growing concern for the ecological welfare of the world spurs calls for
green measures of GNP.

Features of an Economy

Inflation: A sustained, rapid increase in prices, as measured by some broad index (such
as Consumer Price Index) over months or years, and mirrored in the correspondingly
decreasing purchasing power of the currency. It has its worst effect on the fixed-wage
earners, and is a disincentive to save.

Unemployment: Total number of able men and women of working age seeking
paid work. Unemployment statistics vary according to how unemployment is defined and
who is deemed to be part of the workforce. Traditional methods for collecting
unemployment data are based, typically, on sampling or the number of unemployment
benefit requests. International labor organization (ILO) computes unemployment on the
basis of number of people who have looked for employment in the last four weeks and
are available to start work within two weeks, plus those who are waiting to start working
in a job already obtained.

Debt: A duty or obligation to pay money, deliver goods, or render service under an
express or implied agreement. One who owes, is a debtor or debtor; one to whom it is
owed, is a debate, creditor, or lender. Use of debt in an organization's financial
structure creates financial
leverage that
can
multiply yield on investment provided returns generated by debt exceed its cost. Because
the interest paid on debt can be written off as an expense, debt is normally the cheapest
type of long-term financing.

Income distribution: National income divided among groups of individuals, households,

social classes, or factors of production, to compute an average for comparison purposes.

Poverty: Condition where people's basic needs for food, clothing, and shelter are not
being met. Poverty is generally of two types: (1) Absolute poverty is synonymous with
destitution and occurs when people cannot obtain adequate resources (measured
in terms of calories or nutrition) to support a minimum level of physical health. Absolute
poverty means about the same everywhere, and can be eradicated as demonstrated by
some countries. (2) Relative poverty occurs when people do not enjoy a certain minimum
level of living standards as determined by a government (and enjoyed by the bulk of
the population) that vary from country to country, sometimes within the same country.
Relative poverty occurs everywhere, is said to be increasing, and may never be eradicated

Labor costs: The cost of wages paid to workers during an accounting period on daily,
weekly, monthly, or job basis, plus payroll and related taxes and benefits (if any).

Productivity: A measure of the efficiency of a person, machine, factory, system, etc.,

in converting inputs
into
useful outputs.
Productivity
is
computed
by
dividing average output
per period by
the total
costs incurred or resources (capital, energy, material, personnel) consumed in that period.
Productivity is a critical determinant of cost efficiency.

Balance of payments: Key Components Current Account Value of merchandise exports

and imports Value of services exports and imports Value of income receipts and payments
Net value of unilateral transfers Capital Account Value of capital inflows and outflows
Value of financial inflows and outflows Net change in official reserve assets

Three types of economic systems

Three types of economic systems exist, each with their own drawbacks and benefits; the Market
Economy, the Planned Economy and the Mixed Economy. An economic system is loosely
defined as countrys plan for its services, goods produced, and the exact way in which its
economic plan is carried out. In general, there are three major types of economic systems
prevailing around the world.

Market Economy
In a market economy, national and state governments play a minor role. Instead, consumers and
their buying decisions drive the economy. In this type of economic system, the assumptions of
the market play a major role in deciding the right path for a countrys economic development.
Market economies aim to reduce or eliminate entirely subsidies for a particular industry, the predetermination of prices for different commodities, and the amount of regulation controlling
different industrial sectors.
The absence of central planning is one of the major features of this economic system. Market
decisions are mainly dominated by supply and demand. The role of the government in a market
economy is to simply make sure that the market is stable enough to carry out its economic
activities properly.
Features of market economy:
Property Rights:

Property rights are social institutions that govern the ownership, use and disposal of resources,
goods and services.
There are different types of property which individuals and firms can privately own:
1. Real property which includes land, buildings, durable goods such as plant, capital equipment etc.
2. Financial property which includes shares and bonds, bank deposits, money kept at home.
Freedom of choice:
Freedom of choice in the marketplace means there is a voluntary exchange between buyer and
seller. Coercion and force are absent from this process. The freedom of choice is not influenced
by law or by criminal activity. When the freedom of choice is exercised by all market
participants, their collective actions will determine what is produced, what is consumed, and the
price at which the exchange will take place. This is the natural outcome when freedom of choice
is present in the marketplace.

Self Interest:
It is not from the benevolence (kindness) of the butcher, the brewer, or the baker that we expect
our dinner, but from their regard to their own interest

Competition
A market economy encourages competition. Regardless of the type of small business you
operate, you likely face competition in some form. The more competition you encounter, the
more you have to monitor your pricing in relation to your competitors. You also need to develop
some form of marketing campaign to differentiate yourself from your competition and to carve
out your own niche in the marketplace.

Planned/ command Economy

A planned economy is also sometimes called a command economy. The most important aspect of
this type of economy is that all major decisions related to the production, distribution,

commodity and service prices, are all made by the government. The planned economy is
government directed, and market forces have very little say in such an economy. This type of
economy lacks the kind of flexibility that is present a market economy, and because of this, the
planned economy reacts slower to changes in consumer needs and fluctuating patterns of supply
and demand.
On the other hand, a planned economy aims at using all available resources for developing
production instead of allotting the resources for advertising or marketing.

Characteristics of Command Economy

1.
2.

3.

4.
5.

The central plan is closely adhered to and is created by a central government

through rules, regulations and laws.
The government is responsible for creating a central economic plan for the
country. To implement a command economy, short-term goals are set in order to
quickly mobilize and shape the economy.
All goods and services production is set through the central plan. The main goal is
to ensure employment and see that all basic needs are met for every person within the
society.
There is a monopoly owned by the government in industries that are the most
important in meeting the needs of the society.
The regulations and laws created are for the good of the economy and regulate
wage and price controls.

Mixed Economy
A mixed economy combines elements of both the planned and the market economies in one
cohesive system. This means that certain features from both market and planned economic
systems are taken to form this type of economy. This system prevails in many countries where
neither the government nor the business entities control the economic activities of that country both sectors play an important role in the economic decision-making of the country. In a mixed
economy there is flexibility in some areas and government control in others.
Mixed economies include both capitalist and socialist economic policies and often arise in
societies that seek to balance a wide range of political and economic views.

Features
1. Co-existence of public and private sectors:
Both public and private enterprises exist in this economic system. The role and areas of both the
sectors arc well defined.

The relative roles assigned to the public and private sector differ from economy to economy. But
generally the public sector is expected to perform certain basic functions such as:
1.

Development of economic infrastructures.

2.

To promote basic industries those requires huge investment and are of long gestation
periods;

3.

To promote industries in backward regions where inducement to invest is low.

4.

To develop defense production industries in public sector.

Similarly, the private sector is expected to supplement the efforts of public sector and to take
advantages of investment opportunities enhanced by public enterprises.
In the mixed economy the two sectors are not rivals. The two sectors are partners in the process
of development, because for the efficient working of this system the co-operation between the
two sectors is necessary.
The private sector in mixed economy operates under certain controls and regulations of the
government.
2. Economic planning:

Generally a mixed economy is a planned economy. Public sector enterprises have to work
according to a definite plan to achieve certain predetermined aims and objectives. Similarly the
private sector is not left to develop in its own way.

The growth of private sector is also regulated through various controls and incentives to achieve
the objects of plans.
Thus, the nature of economic planning in mixed economies is planning by direction for the
public sector and for private sector planning by inducement is adopted.
To ensure faster economic growth, the developmental programs of both the sectors are
coordinated in such a way that growth in one sector complements the growth in the other sector.
3. Division of industrial undertakings:

There is division of industrial enterprises in a mixed economy. The division of industrial sector
may differ from economy to economy.

Generally, the industrial economy is divided into following:

1. Exclusively State Monopoly. In it same strategic and basic industries are included.
2. Private Sector Industries. In it industries of lesser importance are included such as
consumer goods industries, small scale industries, etc.
3. Joint Sector Industries. The industries included in this sector are developed jointly by
public and private sector.
4. Common Industrial Sector. Both public and private sector can establish industrial units in
this sector.

4. Existence of social welfare and private profit motive:

In mixed economy public sector works as the principle of social welfare motive. Public sector
tries to reduce regional economic inequalities and to increase employment opportunities.
The basis of price policy of public sector is social welfare instead of private profit. Whereas the
operations and price policy of private sector is guided by private profit motive.
But the private profit motive is controlled by government through fiscal and monetary policies,
direct controls, etc.

5. Individual freedom:

The people have freedom of consumption and to choose their occupations in this economic
system. Private entrepreneurs are to choose technique of production.
From the above discussion, it is clear that mixed economy is a marriage between capitalism and
socialism.
It is an attempt to have the merits of both capitalism and socialism Therefore, it is said and
rightly too that mixed economic system a golden path between capitalism and socialism.

Conclusion
The economic environments of a country helps managers better apprise how developments and
trends have and will likely affect their companys performance. A countrys economic policies
give a clear indication of governments goals and the economic tools and market reforms it must
adopt. Managers aim to spot those small changes in a countrys economic environment that
promise to have big market impact. Globally change in one country likely has economic
consequences in other countries. Companies must also watch economic change in those countries
where they may not operate but where they are competitors do. Improving economic
performance or revised economic policies in a particular country, such as is happening in Brazil,
China, India, and Russia, may unexpectedly strengthen their rivals competitiveness.
This factor are just some of the marketers must consider when deciding to market globally. The
global economy can be traced back hundreds of years when traders from the east and west came
together to exchange goods. Through the legacy of mercantilism up to the current GATT Round,
marketers have had to contend with changes and developments in the economic environment,
including the growth of regional economic blocs, all aimed at increasing cooperation between the
grouped nations.

Markets differ widely in their size and state of development worldwide. Countries show great
within country differences also and marketers have to be aware in assessing market potential that
they do not use general descriptions of nations as criteria of whether to, or whether not to, open
trade negotiations.

Reference
Daniels, John D., Radebaugh, Lee H., & Sullivan, Daniel P., (2012), International
Business Environments and Operations Twelfth Edition, Pearson International Edition,
Chapter: The Economic Environment, pp.184-216.
http://www.economywatch.com/world_economy/world-economic-indicators/type-ofeconomic-system.html
http://www.yourarticlelibrary.com/economics/free-market-economic-system-meaningmain-features-and-functioning/36619/
http://www.learnfreedomeconomics.com/the-freedom-of-choice/
http://theinsuranceadvice.com/command-economy-advantage-disadvantage/
http://smallbusiness.chron.com/features-market-economic-system-3887.html
WWW.ICLG.CO.UK
http://www.shareyouressays.com/95714/top-5-main-features-of-mixed-economy