Economics is more important today than it has ever been. Economics can mean one or more of the following four things: economic means (tariffs, quotas, currency manipulation, aid, and sanctions), economic ends (full employment, low inflation, growth, and development), economic implications, and economic causes (to achieve peace or outbreak of war). And for International business all of them have a great impact.
Economics is the study of how a society uses scarce resources to produce and distribute goods and services. The resources of a person or a firm or a nation are limited. Every economy is concerned with what types and amounts of goods and services should be produced, how they should be produced and for whom. These decisions are made by the marketplace, the government, or both. The state of economy affects both people and businesses. Every business operates within the economy.
Based on their economic expectations, businesses decide what products to produce, how to price them, how many people to employ, how much to pay them, how much to expand the business and so on. To do so business we have to study both the macroeconomics (aggregate data) and microeconomics (individual parts of the economy).
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In terms of international economic hierarchy the world is no more characterised as First, Second and Third Worlds (as was the practice during the cold war era). Economically, today many worlds exist: a ‘first world’ comprising of the economic, financial and technological superpowers of the US, the EU, and Japan; a ‘second world’ comprising of economically advanced countries of the rest of the Organisation for Economic Cooperation and Development (OECD); a ‘third world’ comprising of the rapidly developing newly industrialised countries or East and Southeast Asia (Korea, Taiwan, Hong Kong, and Singapore); a ‘fourth world’ comprising of ‘the old NICs’ (the large semi-industrialised Latin American countries – Argentina, Brazil, Uruguay, and Chile); a ‘fifth world’ of the ‘near NICs’ (Malaysia, Thailand, Indonesia, China, and India); a ‘sixth world’ comprising of ‘transitional economies of Eastern Europe and the former USSR; a ‘seventh world’ comprising of few remnants of ‘world communism’ (Cuba, North Korea, etc.); and an ‘eighth world’ comprising primarily of Sub- Saharan African countries that suffer negative growth rates.
Total GDP of the world at current US$ in 2009 stood at $58,228,200,000,000. In the year 2008, world population amounted to 6,697 billion, density of population was 52 persons per square km, gross national income per capita was $8,654, and at PPP per capita GNI was $10,415.
Population dynamics, including growth rates, age structure, fertility and mortality, migration and more, influence every aspect of human, social and economic development. Other core areas of population – including reproductive health and women’s empowerment powerfully influence population trends. International Business is concerned with demand and supply, and population is the base for both of them.
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For international business the scope of inclusion of any country depends upon the gross. Domestic product (GDP). It is one of the primary indicators used to gauge the health of a country’s economy. It represents the total dollar value of all goods and services produced over a specific time period—you can think of it as the size of the economy.
Usually, GDP is expressed as a comparison to the previous quarter or year. For example, if the year-to-year GDP is up 3%, this is thought to mean that the economy has grown by 3% over the last year. Business managers must see at an economy both from long-term and short-term perspectives.
What is the interest rate, what is the level of inflation and what is the availability of employment are important to see the kinds of opportunities or threats available.
It is not only the per capita GNI, but a better picture is presented by another indicator, that is, GNI on purchasing power parity basis. The growth of a country depends on its infrastructural development. Infrastructure does not mean only the physical infrastructure, like roads but also connectivity and institutional infrastructure. How much is developed the infrastructure shall enable MNEs and others to decide whether to undertake business or not.
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On the one hand, policymakers are struggling with ways of managing the present economic challenges while preparing their economies to perform well in a future economic landscape characterised by uncertainty and shifting balances. In such a global economic environment, it is more important than ever for countries to put into place the fundamentals underpinning economic growth and development.
On the other hand international businesses have to minimise risk and earn sufficient returns. This all needs a study of international developments taking place in global economy.
Why global economic activity has shifted from developed to developing economies? Answer to the question shall come from the study of economic environment globally.
How does growth in emerging markets; labor productivity and talent management; the global flow of goods, information, and capital; natural-resource management; and the increasing role of governments provides the opportunities and challenges faced by global economic integration itself and by companies seeking to profit from it.
It would be very clear that the increased overall volatility has become a permanent feature of the global economy, and sharply higher levels of volatility will undermine an economy’s robustness. In addition, high levels of public debt are a headache in Europe and North America, where most executives fear the debt will have a negative impact on GDP growth.
Emerging markets, with populations that are young and growing, will increasingly become not only the focus of rising consumption and production but also major providers of capital, talent, and innovation. This will make it imperative for most companies to succeed in emerging markets.