INTERNATIONAL BUSINESS ANALYSIS

LECTURE 9
DR. SAFA RIAZ KHAN
àEconomic Environment of International Business
(Continued…..)
 Types of Economic Systems

à The Market Economy

à The Command Economy
à The Mixed Economy
1.The Market Economy:
à“An economic system whereby the individuals, rather than state,
make most decisions.
à Based on the concept of capitalism.
à Private owners of profit.
à Citizens have a freedom to decide where to work, what to do, for
how long, where to spend or save money, and whether to consume
now or later.
à Australia, Canada, Singapore.
 Privately owned
ownership of resources

Decentralized
Entrepreneurial Innovation

The Market Economy

Invisible Hand of State,
Laissez faire, property
rights, individualism

Philosophical Anchor:
Capitalism
2.The Command Economy:
à Based on the state’s command of economy.
à Government controls and owns the factors of production.
à Government decides what products to make, in which quantity, at
what price and in what way.
àChina, Russia, Vietnam.
 State owns most of the
resources

Centralized, Large scale,

capital intensive
production
The Command Economy
Visible hand of state,
central planning,
collectivism

Philosophical Anchor:
Communism
3.The Mixed Economy:
à Combines the elements of command and market economies.
à Both state and private owners influence production, consumption,
investment, and savings.
à On one hand, the state intervenes in the ownership of some
resources, centralizes planning functions, regulates market systems.
à On the other hand, state authorizes a range of economic freedoms
to individuals and companies.
à For example, a state might own a car company. Rather than
instructing on the type, quantity and style of cars, state will authorize
the firm to decide.
àSouth Africa, Brazil, Germany.
 State and private ownership
of resources in varying
proportions

Fair and Just economy,

Optimizing the economic
The Mixed Economy
efficiency, pre-empting elf
interests

Philosophical Anchor:
Socialism
 Assessing Economic Development:

1. Monetary Measures
2. Sustainability and Stability
Monetary Measures:

Monetary measures indicate whether an economy:

1) Is expanding or contracting?
2) Needs a boost or should be constrained?
3) Is threaten by inflation or recession?
1. Gross National Income (GNI):

àGNI provides the broadest measures of economic performance.

à The four components are:
§ Personal consumption
§ Business investments
§ Government spending
§ Net exports of goods and services

à Value of all production in the domestic economy together with

income received from other countries (such as profits) minus the
payments to be made to other countries.
2. Gross Domestic Product (GDP):

à GDP is total market value of goods and services produced by

workers within the nation’s borders.
à No matter whether it is generated by a domestic or foreign owned
enterprise.
à GDP plus income from exports, imports, and international activities
is equal to GNI.
3. Gross National Product (GNP):

à GNP is the total value of goods and services produced within a

nation in a particular year.
à It starts by estimating the value of good and services produced in a
year by the labor, assets, and capital provided by the residents of a
country.
à It than adds the income that its citizens earned from working abroad
and removes the income earned by foreigners working domestically.