Chapter Discussion

Understand the purpose of economic analyses.
To keep abreast of the latest economic developments and also to plan for the future, firms regularly assess and forecast economic conditions at the local, state, and national levels. When they enter international operations, the economic analysis increases in complexity because managers are operating in two new environments: foreign and international. There are more economies to study, and these economies are frequently highly divergent.

Recognize the economic and socioeconomic dimensions of the economy.
The various functional areas of a firm require data on the size and rates of change of a number of economic and socioeconomic factors. Among the more important economic dimensions are GNP, GNP/capita, distribution of income, personal consumption expenditures, private investment, unit labor costs, and financial data, such as exchange rates, inflation rates, interest rates, and the amount of a nation’s foreign debt. The principal socioeconomic dimensions are total population, rates of growth, age distribution, population density, and population distribution.

Understand the importance of a nation’s consumption patterns and the significance of purchasing power parity.
Marketers must know how consumers allocate their discretionary incomes, since this is money spent on their products. They must also use purchasing power parity (PPP) to understand what the true purchasing power of a nation is. Consumers in a nation whose GDP appears to be too low to be a viable market may have some discretionary buying power when the GDP based on market exchange rates is converted to a GDP based on PPP.

Understand the degree to which labor costs can vary from country to country.
Hourly labor rates, especially when stated in U.S. dollars, change rather rapidly. There are three factors that are responsible: (1) real changes in compensation, (2) changes in productivity, and (3) changes in exchange rates.

Understand the significance for businesspeople of the large foreign debts of some nations.
Large foreign debts may indicate that the government will impose exchange controls on its country’s businesses. If a large part of the country’s export earnings go to service its external debt, there will be little remaining for use by firms in the country to pay for imports of raw materials, components used in their products, and production machinery. The government could impose price and wage controls. There is also the possibility that firms can buy some of the discounted debt to obtain local currency at a favorable exchange rate.

Ascertain the reasons for the worldwide downward trend in birthrates and its implications for businesspeople.
Birthrates are declining in nearly all nations because (1) governments are providing family planning programs, (2) women are continuing their education and marrying later, and (3) a greater degree or urbanization is enabling women to become employed and self-supporting, which contributes to a delay of marriage.

Understand indicative plans and their importance for businesspeople.
National economic plans, for which no American counterpart exists, provide an insight into government expectations. In centrally planned economies, national plans are often the equivalent of market studies. Many developed and developing nations use indicative plans to set out their goals and provide some general policy statements as to how they will be achieved.