Global Marketplaces and Business Centers: Chapter 2 - 1

Copyright 2013 Pearson Education
Chapter 2
Chapter 2 - 1
Global Marketplaces and
Business Centers
Learning Objectives
Review political and economic traits of
worlds various marketplaces that affect
international business opportunities
Appreciate the uses of national income
data in making business decisions
Discuss North America as a major
marketplace and business center in the
world economy
Chapter 2 - 2
Learning Objectives
Describe Western Europe as a major
marketplace and business center in the
world economy
Discuss Asia as a major marketplace and
business center in the world economy
Assess development challenges facing
African, Middle Eastern, and South
American countries
Chapter 2 - 3
The Marketplaces
of North America
Chapter 2 - 4
North America includes the United States, Canada, Mexico,
Greenland, and the countries of Central America and the
Caribbean. Home to 531 million people, these countries produce approximately 29
percent of the worlds output.
Marketplace Overview
Chapter 2 - 5
Country
Population
(millions)
2009 GDP
(billions) GDP per capita
United States 307 $14,119 $47,240
Canada 34 $1,336 $42,170
Mexico 107 $874 $8,920
Caribbean 41 $259 $6,328
Central America 42 $134 $3,213
This table provides an overview of the major contributors to economic activity in North
America. As you can see, the United States has the largest Gross Domestic Product. It
also enjoys the highest per capita income of the North American countries.
The United States
Chapter 2 - 6
Worlds Largest
Economy
24% Worlds
GDP
Political
Stability
Prime Export
Market
The United States has the worlds third largest population and fourth largest land mass,
yet it possesses the largest economy, accounting for 24 percent of the worlds $58.2
trillion GDP in 2009. Because of its size and political stability, the USA occupies a
unique position in the worlds economy, accounting for about one-tenth of exports of
goods and services and about one-eighth of imports of goods and services. It is the
prime market for lower-income countries trying to raise their standards of living through
export-oriented economic development strategies. It is also the prime market for firms
from higher-income countries trying to attract business from its large, well-educated
middle class.
The U.S. Dollar
Chapter 2 - 7
Invoicing Currency
Flight Capital
Long-Term FDI
The U.S. dollar serves as the invoicing currency the currency in which the sale of
goods and services is denominatedfor about half of all international transactions. It
also is an important component of foreign-currency reserves worldwide. Because of its
political stability and military strength, the United States also attracts flight capital
money sent out of a politically or economically unstable country to one perceived
as a safe haven. Citizens unsure of the value of their home countrys currency often
choose to keep their wealth in dollars. Furthermore, the United States is an important
recipient of long-term foreign investment. Foreigners have invested over $2.3 trillion in
U.S. factories, equipment, and property as of 2010.
Canada
Chapter 2 - 8
34 Million People
Major Exporter
Natural Resources
Trade with USA
Canada has the worlds second largest land mass, although its population is only 34
million. Eighty percent of the population is concentrated within a 100-mile band along the
countrys southern border with the United States.
Exports are vital to the Canadian economy, accounting for 24 percent of its 2009 GDP of
$1,336 billion (in U.S. Dollars). Canadas most important exports reflect its rich natural
resources: forest products, petroleum, minerals, and grain. The United States is the
dominant market for Canadian goods, receiving over three-quarters of Canadas exports
in a typical year. Two-way trade between the United States and Canada, which totaled
$609 billion in 2010, forms the single largest bilateral trading relationship in the world.
Advantages of Canada
Chapter 2 - 9
Proximity to U.S. Market
Political and Legal Stability
Infrastructure and Education
International investors have long been attracted to Canada because of its proximity to
the huge U.S. market and the stability of its political and legal systems. Canadas
excellent infrastructure and educational systems also contribute to the performance of
its economy. However, there is a lingering threat of political instability related to the long-
standing conflict between Canadians who speak French and those who speak English.
Chapter 2 - 10
Federal Government
Open-Market System
International Trade
Mexico
Mexico uses a federal system like the U.S., but its president is elected every 6 years.
For many years, Mexico implemented economic nationalism under which it discouraged
foreign investment and erected high tariff walls to protect its domestic industries. Over
the past two decades, Mexico has abandoned these policies and opened its markets to
foreign goods and investors. It joined NAFTA in 1994. To take advantage of NAFTA,
thousands of companies have established factories in Mexico. It also has free-trade
pacts with El Salvador, Guatemala, Honduras, Japan, Uruguay, and the European
Union.
Central America and the
Caribbean
Chapter 2 - 11
Population of 83 Million
Total 2009 GDP $393 Billion
Significant Economic Challenges
Besides the United States, Canada, and Mexico, the North American continent is
occupied by two dozen other countries that are divided geographically into two groups:
Central America and the island states of the Caribbean. Collectively their population
equals 83 millionmore than twice the population of Canada. However, their total GDP
of $393 billion is a third of that of Canada. With a few exceptions (notably Costa Rica),
the economic development of these countries has suffered from a variety of problems:
political instability, chronic U.S. military intervention, inadequate educational systems, a
weak middle class, economic policies that have created large pockets of poverty, and
import limitations by the United States and other developed countries on Central
American and Caribbean goods.
Summary of Discussion
Chapter 2 - 12
This section covered The Marketplaces of North America. The discussion started by
presenting the population, GDP, and per capital GDP for the marketplaces of North
America. Then, it provided an overview of the economies of the United States, Canada,
Mexico, Central America, and the Caribbean. The next section will focus on The
Marketplaces of Western Europe.
The Marketplaces of
Western Europe
Chapter 2 - 13
Western European countries are among the worlds most prosperous, attracting the
attention of businesses eager to market their products to the regions wealthy
consumers. These countries can be divided into two groups: members of the European
Union (EU) and other countries in the region.
The European Union
Chapter 2 - 14
27 Member Countries $16.4 Trillion in GDP
Population of 499 Million Free Market Oriented
Parliamentary Democracy 17 Members Use Euro
The European Union comprises 27 countries that are seeking to promote European
peace and prosperity by reducing mutual barriers to trade and investment. During the
past two decades, the EU has made tremendous strides in achieving this objective.
With a 2009 GDP of $16.4 trillion and a population of 499 million, it is one of the worlds
richest markets. EU members are free-market-oriented, parliamentary democracies.
However, government intervention and ownership generally play an important role.
Seventeen EU members have eliminated their national currencies, replacing them with a
new common currency known as the Euro.
Influential Members
Chapter 2 - 15
Germany
France
Great Britain
From an economic perspective, Germany is the EUs most important member. With a
2009 GDP of $3.3 trillion, it possesses the worlds fourth largest economy. Germany has
played a major role in formulating the economic policies of the EU.
Politically, France exerts strong leadership within the EU. The French government has
been a leading proponent of promoting common European defense and foreign policies,
as well as strengthening human rights and workers rights in the EU.
The United Kingdoms capital city, London, is a major international finance center. The
UK is also a major exporter and importer of goods, an important destination for and
source of foreign investment, and home to the headquarters or regional divisions of
numerous MNCs.
Chapter 2 - 16
Former Communist
Countries in the EU
Czech Republic
Hungary
Poland
Slovakia
Romania
Estonia
Latvia
Lithuania
Bulgaria
Slovenia
Some of the newest EU members (Estonia, Latvia, and Lithuania) were part of the
Soviet Union. Bulgaria, Hungary, Poland, Slovakia, Romania, and the Czech Republic
were allied with the Soviet Union politically. EU member Slovenia declared its
independence from communist Yugoslavia in 1991.
After the regional trading system established by the Soviet Union broke down in the
early 1990s, former Soviet satellite states had to adjust to the loss of guaranteed export
markets. They also had to restructure their economies from centrally planned communist
systems to decentralized market systems and implement necessary political, legal, and
institutional reforms. The Czech Republic, Estonia, and Slovenia are the furthest along
in this process, already achieving high-income status according to the World Banks
measures.

High Income
Iceland, Norway, Switzerland, Andorra, Monaco, Croatia, and Liechtenstein
Middle Income
Albania, Bosnia-Herzegovina, Macedonia, Kosovo, Montenegro, and Serbia
Chapter 2 - 17
Countries Not in the
European Union
Rich Western European countries that are not EU members include Iceland, Norway,
and Switzerland, plus several small, postage stamp countries such as Andorra,
Monaco, and Liechtenstein. Classified as high income by the World Bank, these free-
market-oriented countries collectively account for 2 percent of the worlds GDP.
The economies of the Balkan countries of Albania, Bosnia and Herzegovina, Macedonia,
Kosovo, Montenegro, and Serbia are classified as middle income by the World Bank.
The exception to this is Croatia, which is in the high-income category. Their post-Cold
War economic progress was slowed by the chaos that surrounded the disintegration of
Yugoslavia in 1991.
Chapter 2 - 18
This section covered The Marketplaces of Western Europe. The discussion started with
an overview of the European Union. The rest of this section discussed the most
influential members of the EU and the newest members of the EU. It closed with an
overview of countries that have not joined the European Union. The next section will
focus on Marketplaces of Eastern Europe and Central Asia.
Marketplaces of Eastern
Europe and Central Asia
Chapter 2 - 19
No area of the world has undergone as much economic change in the past decade and
a half as the countries carved out of the former Soviet Union. Many of these countries
are still dealing with the aftermath of converting from communism to capitalism and from
totalitarianism to democracy. Soviet leader Mikhail Gorbachevs 1986 reform initiatives
of glasnost (openness) and perestroika (economic restructuring) triggered the regions
political, economic, and social revolutions.
Economics and Politics
Chapter 2 - 20
Union of Soviet Socialist Republics
Newly Independent States
Commonwealth of Independent States
The areas modern economic history begins with the creation of the Union of Soviet Socialist
Republics (the Soviet Union or U.S.S.R.), which emerged from the disintegration of the Russian
Empire after World War I. The communists outlawed the market system, abolished private property,
and collectivized the countrys vast rich farmlands. By doing so, they succeeded in reducing the
enormous income inequalities that had existed under czarist rule. Despite this success, the
populations standard of living increasingly fell behind that of the Western democracies.
Gorbachevs economic and political reforms led to the Soviet Unions collapse in 1991 and
subsequent declarations of independence by the 15 Soviet republics, which are now often referred
to as the Newly Independent States (NIS). In 1992, 12 of the NIS formed the Commonwealth of
Independent States (CIS) as a forum to discuss issues of mutual concern.
Russia
Chapter 2 - 21
142 Million People
Natural Resources
Solid GDP Growth
Cash Reserves
The most important CIS member is the Russian Federation (Russia), which was the dominant
republic within the former Soviet Union. As an independent state, Russia is the worlds largest
country in land mass (6.5 million square miles) and the sixth largest in population (142 million
people). The country is well endowed with natural resources, including gold, oil, natural gas,
minerals, diamonds, and fertile farmland.
The transformation of the Russian economy from communism to a free-market system was not
easy. Russias first democratically elected president was Boris Yeltsin. In August 1998, Yeltsins
government was forced to devalue the ruble and impose a 90-day moratorium on payments to
foreign creditors. However, Russias economy has rebounded in the past decade. The second
president, Vladimir Putin, overhauled the countrys taxation system. This initiative worked, and
government revenues have increased.
As the worlds second largest oil producer and exporter, Russia has benefited from the increased
prices of oil and other raw materials. Since 2000, the countrys GDP has increased at an annual
rate of 5.9 percent per year. By early 2011, Russia had accumulated $513 billion in currency
reserves, the third largest in the world after China and Japan. Going forward, Russias prospects for
continued economic growth look strong.
Chapter 2 - 22
Central Asian Republics
Common Heritage Individual Countries
Kazakhstan
Uzbekistan
Tajikistan
Turkmenistan
Kyrgyzstan
Russian Influence
Language and Religion
Scarce Arable Land
Low Per Capita Income
Fossil Fuel Reserves
The five Central Asian republics of the former Soviet UnionKazakhstan, Uzbekistan, Tajikistan,
Turkmenistan, and Kyrgyzstanhave much in common. One common feature is the importance of
Russia in their recent political history. The five republics were part of czarist Russia. Each became
a Socialist Republic of the Soviet Union after the communists deposed the czars. When the Soviet
Union dissolved in 1991, the five declared their independence.
The Muslim faith is the dominant religion in all of them. Their languages share Turkic or Persian
roots. All suffer from a scarcity of arable land; mountains and deserts dominate their landscapes.
Their peoples are poor, with per capita incomes ranging from $700 in Tajikistan to $6,740 in
Kazakhstan. However, extensive fossil fuel reserves can be found throughout Central Asia,
particularly in Kazakhstan and Turkmenistan.
Chapter 2 - 23
This section covered the Marketplaces of Eastern Europe and Central Asia. The
discussion started with an overview of the economics and politics of this region. The rest
of the discussion covered Russia and the Central Asian Republics. The next section will
focus on The Marketplaces of Asia.
The Marketplaces of Asia
Chapter 2 - 24
Asias importance to international business cannot be overstated. The region is a source
of both high-quality and low-quality products and of both skilled and unskilled labor. Asia
is a major destination for foreign investments by MNCs, as well as a major supplier of
capital to non-Asian countries. More important, its aggressive, efficient entrepreneurs
have increasingly put competitive pressure on European and North American firms to
boost their productivity and improve the quality of their products.
Chapter 2 - 25
Japan
126 Million People
$5.1 Trillion GDP
MITI and Keiretsu
Japan is an island country of 126 million people. It is the third largest economy in the world, with a
GDP of $5.1 trillion in 2009. Japans rapid growth during the past 50 years is due in part to the
partnership between its Ministry of International Trade and Industry (MITI) and its industrial sector.
(In 2001, MITI was renamed the Ministry of Economy, Trade, and Industry.) The formal and informal
powers wielded by MITI have guided production and investment strategies of the countrys
corporate elite.
MITI has been aided by Japans concentrated industrial structure. Japanese industry is controlled
by large families of interrelated companies, called keiretsu, that are typically centered on a major
Japanese bank. The bank meets the keiretsus financing needs. Keiretsu members often act as
suppliers to each other, thus making it more difficult for outsiders to penetrate Japanese markets.
Members are also protected from hostile takeovers by an elaborate system of cross-ownership, in
which keiretsu members own shares in one anothers companies.
Challenges for Japan
Chapter 2 - 26
GDP Growth
Trade Issues
Demographics
Since 2000, Japans GDP has grown at an annual rate of 1.1 percent, well below the 2.9
percent average growth in the world economy. Many experts are concerned that the
Japanese political and economic systems have not been able to adjust quickly enough
to the changes in the world economy, such as the growth of e-commerce and the
emerging markets. Moreover, Japan has received much international criticism because
of the perception that it employs unfair trading practices to market its exports, while
using numerous nontariff barriers to restrict imports to its domestic market. Perhaps
Japans greatest challenge, however, is dealing with its growing demographic crisis: the
aging of its population.
Australia and New
Zealand
Chapter 2 - 27
Australia New Zealand
22 Million People
Sydney and Melbourne
Merchandise Exports = 17% of $925 Billion GDP in
2009
4.3 Million People
North and South Islands
Merchandise Trade = 20% of $126 Billion GDP in 2009
Although Australia and New Zealand share a common cultural heritage, significant differences exist
between the two countries.
Australias 22 million people live in an area of 2.97 million square miles, with approximately 40
percent living in either Sydney or Melbourne. Merchandise exports, which in 2009 accounted for 17
percent of its $925 billion GDP, are concentrated in natural resource industries (such as gold, iron
ore, and coal) and land-intensive agricultural goods (such as wool, beef, and wheat).
New Zealands 4.3 million people live on two main islandsthe more populous North Island and
the more scenic but less temperate South Island. Merchandise trade is extremely important to the
country. In 2009, exports constituted 20 percent of its $126 billion GDP. These exports include dairy
products, meat, and wool.
The Four Tigers
Chapter 2 - 28
South Korea Taiwan
Singapore Hong Kong
The Four Tigers are South Korea, Taiwan, Singapore, and Hong Kong. The World Bank has classified them as
high-income countries for over a decade.
South Korea (The Republic of Korea), was born after the Cold War divided the Korean peninsula into communist
North Korea and capitalist South Korea. Exports accounted for 44 percent of its 2009 GDP of $833 billion.
Taiwan (the Republic of China) is an island country off the coast of mainland China. It is home to 23 million
people. It was born after the civil war between nationalist forces and Chinese communists. During the past 30
years, it has been one of the worlds fastest-growing economies. Exports of $275 billion in 2009 were 64 percent
of Taiwans GDP of $427 billion.
The Republic of Singapore is a small island country off the southern tip of the Malay Peninsula. In 2009,
Singapores exports totaled $270 billion, or 148 percent of its GDP of $182 billion. That figure is not a misprint.
Singapore thrives on re-exporting from its excellent port facilities. It also provides communications and financial
services, and it is a center of high technology in the region.
After the opium war (18391842) between the United Kingdom and China, Hong Kong was ceded to the British.
On July 1, 1997, China assumed control of Hong Kong, designating it as a special administrative region (SAR)
and granting it a fair degree of autonomy. As a re-exporter, Hong Kong exported $330 billion worth of goods in
2009, or 194 percent of its $215 billion GDP.
China
Chapter 2 - 29
1.3 Billion People
Communist Party
Market-Oriented Policies
With 1.3 billion people, China is the worlds most populous country. It was ruled by a
series of emperors from 2000 B.C., until the early 1900s, when a republic was founded.
In 1949, the communist forces of Mao Tse-tung defeated the nationalist army led by
General Chiang Kai-shek.
After Maos death in 1976, the government adopted limited free-market policies.
Agriculture was returned to the private sector, and entrepreneurs were allowed to start
small businesses. Foreign companies were permitted to establish joint ventures with
Chinese firms. However, Communist Party leaders have not been unwilling to step
aside. Therefore, China is following a unique path. It continues to adopt market-oriented
economic policies under the Communist Partys watchful eye.
Chapter 2 - 30
Annual FDI Flows to China
1992 2009
Chinas vibrant economy, which grew 10.9 percent a year from 2000 to 2009, has attracted the
attention of firms worldwide. As a result, FDI in China has exploded. Of particular note are the
increased investments by overseas Chinese investors living in Taiwan, Hong Kong, and Singapore,
who see China as a source of hard-working, low-cost labor. While Chinas cities have boomed
economically, this is less the case for the countrys estimated 750 million rural residents. A major
challenge facing Chinas leaders is closing the growing income gap between its urban and rural
residents.
Chapter 2 - 31
1 Billion People
British Influence
Global FDI
Solid GDP Growth
India
India is the worlds second most populous country, having reached the 1 billion mark in 2000. India
was part of the British Empire until 1947. Then, the Indian subcontinent was partitioned along
religious lines into India, where Hindus were in the majority, and Pakistan, where Muslims were
dominant. The new country of India adopted many aspects of British government, including a strong
independent judiciary, a professional bureaucracy, and the parliamentary system.
For most of its postWorld War II history, the country has relied on state ownership of key industries
as a critical element of its economic development efforts. Before 1991, India discouraged foreign
investment. Then, Prime Minister Rao enacted market-opening reforms. Since then, India has
attracted FDI from MNCs based in developed countries, and its GDP growth has averaged 7.8
percent annually since 2000.
However, problems remain. For example, corruption is widespread, and the countrys infrastructure
is overburdened. Opaque government policies have discouraged foreign investments, leading the
World Bank to warn that failure to trim red tape may staunch the flow of foreign capital into sectors
that are crucial to Indias economic growth.
Thailand
Malaysia
Indonesia
Vietnam
Chapter 2 - 32
Southeast Asia
Asia is home to numerous other countries at various stages of economic development. Thailand,
Malaysia, and Indonesia are countries with low labor costs that have been recipients of significant
FDI during the 1980s and 1990s. As labor costs have risen in their homeland, many Japanese
MNCs have built satellite plants in these three countries to supply low-cost parts to parent factories
in Japan. In addition, U.S. and European MNCs have used these countries as production platforms.
Although their growth temporarily slowed as a result of the 1997 Asian currency crisis, the
Malaysian, Thai, and Indonesian economies have boomed as a result of exports generated by FDI.
Vietnam is also becoming important to MNCs. For example, Intel constructed a billion dollar chip
testing and assembly factory in Ho Chi Minh City, which began operating in 2010.
Chapter 2 - 33
This section covered The Marketplaces of Asia. The discussion focused on Japan,
Australia and New Zealand, the Four Tigers, China, India, and Southeast Asia. The next
section will focus on The Marketplaces of Africa and the Middle East.
The Marketplaces of Africa
and the Middle East
Chapter 2 - 34
Africa covers approximately 22 percent of the worlds total land area and is rich in natural
resources. Egypt occupies the northeastern tip of the African continent and represents
the western boundary of what is commonly known as the Middle East.
Chapter 2 - 35
Africa
1 Billion People
Colonialism
Commodities
Agriculture
South Africa
The African continent is home to 1.0 billion people and 55 countries. Most of Africa was colonized in the late
nineteenth century by major European countries for strategic military purposes and domestic political demands.
The tide of colonialism began to reverse in the mid-1950s. Vestiges of colonialism remain in todays Africa,
however, affecting opportunities available to international businesses.
The commodity boom has boosted the economies of many African countries. Algeria, Angola, Gabon, Libya, and
Nigeria are major exporters of oil; Zambia is a rich source of copper; and Botswana has diamond fields. However,
the governments of these countries face the challenge of leveraging the growth in their commodities sector to
create broad-based economies that can benefit their entire populations. Agriculture also is important to many
African countries. It accounts for over 40 percent of the GDPs of the Central African Republic, Sierra Leone,
Tanzania, and Rwanda. Unfortunately, the population in many African countries is largely employed in subsistence
farming. Many experts believe South Africa will be the dominant economic power and the continents growth
engine during the twenty-first century. South Africa possesses fertile farmland and rich deposits of gold, diamonds,
chromium, and platinum. Nobel Peace Prize winner Nelson Mandela was elected president in May 1994 in the
countrys first multiracial elections. In 2009 South Africas exportsprimarily mineralsaccounted for 22 percent
of its $286 billion GDP.
Middle East
Chapter 2 - 36
Life After Oil
Petroleum
Richness
Political
Instability
Cradle of
Civilization
The Middle East includes the region between southwestern Asia and northeastern Africa. This area is called the
cradle of civilization because the worlds earliest farms, cities, governments, legal codes, religions, and
alphabets originated there.
The Middle East has had a history of conflict and political unrest, which has raised the risk of doing business in the
region. In 2011, uprisings against the lack of democracy, poor employment opportunities, and high income
inequality led to the ousting of long-time rulers in Egypt and Tunisia and to a civil war in Libya.
In 2009, Saudi Arabia, with a GDP of $369 billion, had the largest economy in the Middle East; however, Israel
enjoyed the highest per capita income at $25,740 per annum. The region is home to many oil-rich countries. In
Saudi Arabia, oil accounts for 45 percent of GDP and 90 percent of total export earnings.
Some of the oil-rich nations of the Middle East are attempting to diversify their economies for life after oil. Dubai
offers foreign investors all the benefits of a foreign trade zone, an excellent infrastructure, and an entry point for
exports to the region. Many of these petro-states have amassed impressive portfolios of foreign investments.
Some of these sovereign wealth funds have grown so large that they have created political concerns.
Chapter 2 - 37
This section covered The Marketplaces of Africa and the Middle East. The discussion
focused on the continent of Africa and reviewed market conditions in the Middle East.
The next section will focus on The Marketplaces of South America.
The Marketplaces of South
America
Chapter 2 - 38
South Americas 13 countries share a common political, social, and economic history.
Spanish and Portuguese explorers subjugated the native populations, exploited their
gold and silver mines, and converted their fields to plantations. By the end of the
eighteenth century, the hold of the two European powers on their South American
colonies had weakened. Led by such patriots as Simon Bolivar, one colony after another
won its independence by 1825. However, independence did not cure the continents
problems. Many South American countries suffer from huge income disparities and
widespread poverty among their peoples, leading to political instability and continual
cries for reform.
Chapter 2 - 39
Import
Substitution
Export
Promotion
Economic Policies
For much of the postWorld War II period, the majority of South American
countries followed what international economists call import substitution policies
as a means of promoting economic development. With this approach, a country
attempts to stimulate the development of local industry by discouraging imports
via high tariffs and nontariff barriers. The opposite of import substitution is
export promotion, whereby a country pursues economic growth by expanding
its exports.
Chapter 2 - 40
Prices
Exports
Taxes
Inflation
Problems with Import
Substitution
For most South American industries, the domestic market is too small to enable domestic
producers to gain economies of scale through mass-production techniques or to permit much
competition among local producers. Thus, prices of domestically produced goods tend to rise above
prices in other markets. This benefits domestic firms that face import competition. However, it
hampers domestic exporters in world markets because they must pay higher prices for domestically
produced inputs. Inevitably, the government must subsidize these firms and often nationalize them
to preserve urban jobs. The high costs of doing this are passed on to taxpayers and to consumers
through higher prices. Ultimately, the government runs a budget deficit. The result is inflation and
destruction of middle-class savings.
Current Situation
Chapter 2 - 41
Improved
Business
Climate
Lack of
Social and
Economic
Mobility
Many major South American countries (including Argentina, Brazil, and Chile) adopted these well-
intentioned but ultimately destructive import substitution policies. In the late 1980s, however, the
countries began to reverse their policies. They lowered tariff barriers, sought free trade agreements,
privatized their industries, and positioned their economies to compete internationally. Chile, for
example, is now one of the most free-market-oriented economies in the world. The continents
economies boomed during the 1990s, as a result of these policies. More recently, increasing
demand for raw materials and food stuffs has benefited many South American firms.
However, the continent is still plagued by the chasm between the rich and the poor. The lack of
economic and social mobility has trapped generations of South Americans in poverty and despair
and created political instability in many of their countries.
Chapter 2 - 42
This section covered The Marketplaces of South America. The discussion started by
comparing import substitution and export promotion as economic policies. It then
examined the problems associated with import substitution. The discussion closed by
examining the current situation in South American markets. This presentation will close
with an overview of the learning objectives for this chapter.
Central Asia
Chapter 2 - 43
Middle East
Chapter 2 - 44
Southeast Asia
Chapter 2 - 45
South Asia
Chapter 2 - 46
East Asia
Chapter 2 - 47
North America
Chapter 2 - 48
South America
Chapter 2 - 49
Africa
Chapter 2 - 50
Western Europe
Chapter 2 - 51
Eastern Europe
Chapter 2 - 52
Northern Europe
Chapter 2 - 53
Southern Europe
Chapter 2 - 54
Australia & New Zealand
Chapter 2 - 55
Central America
Chapter 2 - 56
Chapter 2 - 57
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recording, or otherwise, without the prior written permission of the publisher. Printed in
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