International Business 18 03 2009

Slide 1: 

7/25/2010 International Business 1 INTERNATIONAL BUSINESS MAR 2009 Economic Classification& Transformation processes affecting International Business Steps of Economic Transformation Privatization Inflation & it’s role in the economy Entrepreneurism

Economic Classification& Transformation processes affecting International Business : 

7/25/2010 International Business 2 Economic Classification& Transformation processes affecting International Business A. Pure Market Economy Private ownership Forces of demand & supply Sovereignty of consumers / customers No restrictions on supply Role of Govt. Role of entrepreneur B. Pure Command Economy Govt. ownership / Govt. Planning Objective : Allocate resources for good of society Exists in Communist countries Investments are for national interests Collective goals are favored over individual goals. Little incentive for reducing costs, innovation, efficiency & dynamism End result STAGNATION

Economic Classification& Transformation processes affecting International Business : 

7/25/2010 International Business 3 Economic Classification& Transformation processes affecting International Business C. Mixed Economy Combination of Market & Command economy Certain sectors are left for private ownership, whereas majority are with Govt. Govt. may take over sick private industries which are vital for national interests D. State Directed Economy Investments & Industrial policy is directed by state Regulatory activities are suiting national interests / goals State nurtures private enterprises Govt. helps upcoming enterprises to take on large enterprises in developed countries. ( infant industry / eco. Of scale ) Investments are dictated by Bureaucrats / Politicians.

Steps of Economic Transformation : 

7/25/2010 International Business 4 Steps of Economic Transformation SHIFT TOWARDS MARKET DRIVEN ECONOMY Financial Deregulation in global economy Information revolution Removal of barriers Trade liberalization Role of Govt. To provide legal framework & rules for monetary institutions to develop. To make market resilient & efficient Market discipline versus centralized controls Market adjusts itself of it’s own Inefficient institutions are wedded out Free entry / exit, full disclosure Personal liability of risk Market forces decide / rule behavior of banks.

Steps of Economic Transformation : 

7/25/2010 International Business 5 Steps of Economic Transformation Financial stability & monetary stability Free banking with competitive currency Evolution of the Global economy International co ordination Rule based approach Macroeconomic policy making Competitive approach.

PRIVATIZATION : 

7/25/2010 International Business 6 PRIVATIZATION Key drivers of Privatization Privatization helps to establish free market. Privatization fosters capitalist competition Privatization is usually associated with key industrial / service sectors like mining, power etc. Now a days Privatization is also in Infrastructure, road, water rights Reasons for Privatizing Govt. run institutions. Politically sensitive / interference in purchases, prices , recruitment Stagnation on improvement Corruption Business goals are suppressed over social goals Can not diversify , expand for want of funds.

PRIVATIZATION : 

7/25/2010 International Business 7 PRIVATIZATION Reasons / Arguments against Privatization. Only one goal MAXIMISE PROFITS Public do not have control Splitting large public co. into small private cos. Reduces efficiency Profits are for only few private owners & no governance Private companies tend to cut down on training, after sales services, maintenance services. Corporatization Converts state deptts. Into public companies. Incorporate commercial boards comprising board of directors ( ministers ) & management of enterprise Global trends in Economic Growth GDP GDP rate GNP

INFLATION : 

7/25/2010 International Business 8 INFLATION Rise in general level of prices OR fall in the currency value OR fall in purchasing power of money Common measures of Inflation Consumer price index : Price of selection of goods purchased Producer price index : Price of a certain inputs purchased by firm Wholesale price index : change in price of a selected goods at wholesale level. Role of Inflation in the economy. Uncertainty discouraging investments & saving Redistribution of spending pattern ( credit cards / loans ) International trade Menu costs Shoe leather costs.

ENTREPRENEURISM : 

7/25/2010 International Business 9 ENTREPRENEURISM How does entrepreneurism helps / spur economic growth. The level of perceived entrepreneurial opportunity. Motivation & skill factors of entrepreneurs Infrastructure : Finance, land, Govt. assistance, Transportation, tax assistance / holiday Demographic make up Education Culture