Global business management - Topic 1: Global economy and international business

ISYS40141 - Global Business ManagementLecture 1 - The global economy and international business

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The global economy and international business• The nature of the global economy – ‘globalisation’

• Economic trends / indicators

• Scale & nature of international business

The nature of the global economy

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The nature of the global economy

• Globalisation– What does it mean?– Who benefits?– Environmental and social issues – ‘sustainability’ – to be covered in

later lectures

• A single definition is too simplistic

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Globalisation – what does it mean?

Everyone around the world will have a different view and different experiences of the opportunities and threats that global business presents

Economic trends and indicators

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Economic trends and indicators

• Measures of different aspects of the world economy (value and rate of change)– GDP – Population– Unemployment– Gini coefficient

• Global trends

• Regional and national / country trends– What do the different values mean for business & economies?

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Trends are important but…

The earthquake and tsunami in Japan cause supply problems for Japanese based companies (to Apple and Toyota for example), and shrinks demand for goods and services sold in Japan.

Tensions in North Africa and the Middle East create changes in oil prices and uncertainty about supply. It also constrains the movement of labour in those areas.

The currency crises in Greece, Portugal and Ireland mean that public sector spending will be lower.

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1. GDP – Gross Domestic Product

• The market value of all final goods and services produced in a country in a given period.

• GDP simply stated for a country is of limited value – because countries with larger populations typically have larger GDP values.

• GDP per person / per capita is the most useful comparison.

• GDP can also be expressed as ‘nominal’ or ‘PPP’ (purchasing power parity)– PPP takes into account relative cost of living and inflation, as well

as exchange rates (typically to US dollar)

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Gross Domestic Product – per capita

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Changes in GDP – per capita

1950

1954

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

2010

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

GD

P p

er

capita (

real U

SD

, 2005 p

rice

s)

1952

1956

1960

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000

2004

2008

0

5000

10000

15000

20000

25000

30000

GD

P p

er

capita (

Rm

b)

China USA

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2. Population

• Why might measuring population be important?

• What about changes in population?– Increasing or decreasing?– Average age increasing or decreasing?– Bulges in age groups or gaps?– Longevity?– Location? Urban versus rural?– Gender mix: Are males and females changing at the same rate?

• Link GDP to Population– Average GDP per capita

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Population – trends #1

The % increase in total population in India has been greater than for China every year since 1973 – what does this tell us?

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Population – trends #2

% of the total population which is under age 14, for Brazil, Germany and Egypt – what does this tell us?

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Population – trends #3

% of the total population which lives in urban locations for USA, Pakistan and China – What does this tell us?

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3. Unemployment

• What is ‘unemployment’?– “The percent of the labour force that is without jobs” (CIA World

Factbook)

– “People without jobs and they have actively looked for work in the last four weeks” (International Labour Organisation)

– “All persons above a specified age, who are without work, are currently available for work, and are seeking work” (OECD)

– “Unemployed people are jobless, have been actively seeking work in the past four weeks, and are available to start work in the next two weeks; or if they have found a job, and are waiting to start it in the next two weeks” (UK National Statistics)

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Unemployment - trends

% of the male labour force which is unemployed. Spain is cyclical, but why is South Africa counter-cyclical and Japan more steady?

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Unemployment – trends #2

% of unemployed females who are long-term unemployed. Why is Mexico so low and stable, why are UK and Poland converging?

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4. Gini coefficient

Is a measure of the inequality of distribution; 0 being total equality, 100 being total inequality

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Gini coefficient

• When to make use of it?– To get a sense of the type of market that country may support

• High Gini index (high inequality) – Market for luxury goods? What about your brand image?

• Low Gini index (low inequality) – Market for commodity / affordable goods? What about profitability?

– To see how a particular country is trending – more or less income equality?

• Weaknesses– It is relative – you cannot compare country to country in detail– It is a measure of INCOME, not WEALTH

The scale and nature of international business

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Scale and nature of international business

• What does “international business” mean?

• Different definitions of this type of business– Multinational– International– Global– Transnational

• The role of Governments in international business– Tariffs, free trade, investment, enterprise support,

• The role of Organisations in international business– Trade organisations, EU, ASEAN, NAFTA, World Bank, WTO

Covered in more detail in later lectures

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International business

• Business activities that involve the transfer of resources, goods, services, knowledge, skills, or information across national borders.

• There can be international trade – where a company exports goods or services to buyers in another company

• There can be international investment – where a company invests resources in business activities outside its home country

• World Trade Organisation (WTO) estimate for worldwide total merchandise exports 2009 is $12,177,642,000,000

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Case study - Tata

• “Anchored in India”

• 57% of total revenues were from outside India

• Each operating company in the Tata group develops its international business based on the dynamics of that industry sector.– Some focus on India domestic market, some in ‘neighbouring markets’ and

some globally.

• Exports from India remain the cornerstone

• But;– Greenfield developments in South Africa, Bangladesh, Iran– Joint Ventures in South Africa, Morocco, China– Acquisitions in UK (Tetley, Jaguar Land Rover, Corus Steel), South Korea

(Daewoo), Singapore (NatSteel), USA (Tyco, General Chemical)

• Priority markets are; USA, UK, China, Netherlands, Germany, South Africa, Brazil, Vietnam, Thailand, Sri Lanka, Gulf Cooperation Council members

Summary & seminar topic

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Summary

• ‘Globalisation’ is not a well defined term – it will mean different things to different people and different nations in different circumstances.

• High level trends of GDP per person, population, unemployment and Gini coefficient (amongst others) can provide an initial sense of the state of a country or of a group of countries.

• Reviewing that data as a trend over time is most important – but don’t forget that incidents can occur that will immediately upset the trend!

• Global business is very large (over $12tn for 2009) and there are many stakeholders involved in many different ways.

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Seminar topic – Country data and trends

• Go to http://data.worldbank.org/data-catalog?display=graph

• Download the World Development Indicators / Global Development Finance spreadsheet - it’s a large MS Excel file called ‘WDI and GDF (Excel) – ZIP’

• For your own country, or a country of your choice, and for the United Kingdom, compare the following for the years 1999 to 2009;– GDP per capita, PPP (constant 2005 international $)– Total unemployment (% of total labour force)– Population ages 65 and above (% of total)

• What do the 10 year trends for these data sets look like? Can you think why the two countries may be different or the same? What does the data tell you if you were an international business?

• There’s a short ‘How to’ guide on NOW for using the WDI GDF spreadsheet if you get stuck.