Economic systems and international business busi ness Economic Systems An economic system is what allows a country to decide what to produce, how to produce, and for whom who m to produce. These systems include natural resources, labor, capital, management and standards for creating products. Market Economies In market economies, i) ownership of private property is encouraged, ii) businesses are encouraged to produce better products, iii) competition is encouraged because it can create better quality and lower prices, iv) the overnment has little direct involvement with the business itself, and v) self! sufficiency is not seen as an economic goal.
"upply and demand control market economies. The #law$ of supply supply states that as the price of a product increases, producers will be willing to make more of that product. The #law$ of demand states that as the price of a product increases consumers will demand less of that product. %roducers must find the equilibrium point which is the point at which the consumers are willing to pay pa y the asking price and the company co mpany still makes a profit. Centrally Planned Economies In centrally planned economies the government controls the ownership of private property. &y having more government gove rnment control the profit motive is not the main goal of the business.
There are fewer pure centrally planned economies following the collapse of communism in the former "oviet 'nion. Mixed Economies A mi(ed economy includes government involvement and private ownership of businesses. In some countries, the government governmen t owns the transportation and communication businesses. In socialist mi(ed economies, most of the main industries are government controlled, but citiens are free to work in other industries.
*anada has a mi(ed economy. &ecause *anada has a large, land mass and a relatively small population, the *anadian government has to play a ma+or role in our important industries. "weden, Italy, and Australia have also adopted mi(ed economy systems. overnments privatie state owned enterprises. %rivatiation may occur when a country moves from a centrally planned to a market economy, it can also happen in mi(ed economies.
As a countries economic system matures, it tends to move towards a market system. hen a centrally planned economy shifts to a market economy, the price of some products rise, there is more competition, and there may be greater unemployment. Global Economic Systems "ince no nation can be completely self sufficient, they must trade with others (interdependence ). Economic growth increases economic stability and brings the nation confidence as well as the ability to invest in the future.
The global economy reflects the total amount of interdependent economic activity around the globe. In the past, the government would set rules on economic policies, but now the world is becoming one big market and trade barriers are beginning to slack. lobal economy provides countries with more +obs and a higher standard of living. *ountries use different strategies such as clustering -+oining together in their industries) to get into the new economic order. Business Cycles &usiness cycles are patterned movements in the economy measured by the growth of production and industries. There are phases/0 1) Depression -slowest economy), 2) Recovery -improving economy), 3) Prosperity -good economy), and ) Recession -economy begins to slow) *See pg 288 for full explanations !e "orld Economic #reedom $ndex &usinesses must be aware of the economic %reedom rating -A measure of prosperity that relates to economic growth, per capita income, and material wealth, calculated according to the level of market and trade freedoms a country has)
#The Economic 4reedom of the orld$ measures the following factors0 !sie of government !international e(change !5onetary policy and price stability !economy structure 6 use of markets !freedom to use alternative currencies !freedom of e(change in capital 6 financial markets !legal structure and property rights *See pg 289 for current and past global economic freedom ratings Canada&s Global Entrepreneurs In 2777, 1 in 18 *anadian adults tried to start a business -In this year *anada was th ranked 8 of 21 countries for entrepreneurial activity). In most of Europe, employers provide good benefits. It makes people not want to risk
entrepreneurial activity. Encouraging new business ventures also requires an environment with minimal paper work and applications. 'roundt!eClock "orld Markets "tock e(changes are discussing the creation of a global market. 9rdinary investors will be able to buy and trade stocks without being restricted by hours and listings of their home market.
This new market is referred to as the global equity market. Equity is something that has worth, such as a home or stocks. Ten e(changes in three time ones are considering the set up0 !Toronto, :ew ;ork, 5e(ico, and "ao %aolo, &rail in the Americas !Australia, Tokyo, and
The benefit of the Euro is that it simplifies transactions, reduces e(change risks, and strengthens European companies> trading within and outside the E'. "ome people have suggested a common currency between the '"A and *anada? referred to as dollariation. "ome effects would be a closer link between the two economies. *anada has already adopted the '" dollar as a second currency. 5ore and more *anadian companies have listed themselves in the '" stock e(change. A single currency might ultimately hand *anada>s monetary policy to the '". It will take time to decide if a common currency would provide easier trade and travel. Impacts of economics system on international business $ntroduction
@ast four years had seen a rapid, radical change in an international economic condition. The lobal Economic change embodies the upgrading and degrading of any countrys living standard. lobal economic changes affect the economic environment which includes level of employment, inflation, interest rate, ta(ation and e(change rate.
business. Internationally there are number of problems which had affected the international economy as well as national economy such as problem in international trade, diseases like bird flu, environmental condition such as disasters like tsunami in Bapan, financial crisis etc. and for these reasons globally coordinated efforts are required like international public goods whose rules applies across the globe as a whole 5., 4erroni and A., 5ody, -2772). Cefining global economy The term global or international economy refers to the combined world economy with a free and open transaction of labour, technology, goods and services? it is a picture of an interconnected international economy with an increased movement of capital. This concept could not be understood in isolation but parallel to globaliation which is an integration of consumption and production in every market across the world. It is a clear view that globaliation not only benefits the country globally but also do the betterment for the whole global economy. Today the international economy is considered as an economy with a common or combined market for all goods and services produced Economyatch.com.
Global economy at a glance In 2717, the world economy in term of C% was worth D.77 trillion -%%% method) and e(pected to grow DF.7G2 trillion in 2711. Economic condition with in &HI* -&rail, Hussia, India and *hina) have posted to 17 growth rate. These conditions of &HI* countries played a huge role in making the economic atmosphere for less wealthy nations as in many situations under developed and developing countries depend on economic wellbeing of developed countries 5., @aneni, -277F). The global economic condition is mostly dominated by technological aspect? particularly computers, telecommunications, robotics, medical equipment etc. although the huge advancement has taken place in developed nations but this accelerated development of agricultural and industrial technology both is creating a complicated environmental problems. The growth rate for industrial production is estimated in 2773 at 3. lobal economic change Today the international system is under the huge structural change in term of both economic and political dimension. The international economy has combined its production and financial system to an e(traordinary degree, which challenges the nations economic authority and creates demand for global organiations %ollins, &., -277). The hasty economic development in various large emerging!market -@E5s) economies is responsible for such a radical change in the g lobal economy.
Heasons for global economic change Across the globe today economies are going through a huge economic modification process. The big economists has described this process by many different terms such as globaliation, industrialiation, structural ad+ustment, and some time even +ust economic change. enerally these changes occur due to the decrement of government involvement or from command to capitalist economies. It can be said that there are three coinciding mechanisms responsible for the world!wide economic change or ad+ustment process. "hift of *ommand to capitalism economic environment. *ommand economy is the economic system where price, supply and distribution are under government regulation and only government have an authority to decide about which good and services have to be produced and in what quantity it is also termed as centrally planned economy Ericson, H., E., -277J). 9n the other hand in capitalism type of economic system the capital is owned by the private owners and government role is very limited in this "wedberg, H., -2711). In real life case pure command and pure capitalism economy does not e(ist but a mi(ed economic system containing features of both capitalism and command economy is followed although economies may vary between command and capitalism economy. Today due to the globalisation the mi(ed economic system became imbalanced and tilted towards capitalism system of economy. "TH'*T'HE The sequence of policies designed to decrease the role of government and increase the role of private sectors. There are certain policies followed such as privatiation in wh ich government assets are sold to private owners, promoting competitions among private owners, leaving very limited role in governments hand, reformation of price globaliation of the economy, lowering the government budget and do less government spending which reduce inflation and promote private investment.
%rivatiation %olices *ompetition limited role of government %rice reformation promoting private investment "ource0 authors creation BE)E#$S ')D PR*B+EMS
There are some benefits and problems involved in the economy shift from command economy to the capitalism economy. "uch as market based economy that is capitalism economy is a lways achieves more efficiency compared to command economy and very less resources are wasted but in negative sense initially there is a period of inflation, unequal economic distribution of income and unemployment Cave, "., -277). 4ree trade Economists favour free trade and recently '" congress and '" president have supported the view for removing of trade barriers. It is not wrong to say that across the globe countries are decreasing there trade barriers. And many have even signed multilateral and bilateral agreements with other countries in neighbour or region.
Bene%its and problems o% %ree trade
As the income level of people keep on increasing their living standard also increases and for that they need and buy more lu(ury goods. Therefore countries producing lu(ury goods get richer as the demand for their produced increase overtime. %eople also get e(posed to more variety of goods and services which is the biggest benefit of the free trade. 4ree trade is the biggest means of competition and competition can be full of risk and particularly in the situation countries prosperity. *ompany also try hard to protect them self against free trade. And in that situation foreign goods can be more e(pensive as more ta( is imposed. It also dangerous for the local producers as they have to face multinational business organiations and which ultimately pushes them to e(ploit the locals %ettinger, T., -277). Economic Cevelopment &ut after all the reasons the biggest reason for the economic change is the overall worlds economic development. It is hard to define this concept but increase in C% per capita is taken as the measure by the economists. There were two main concepts taken as the reasons for economic development they are0 E,P*R *R$E)ED $)D-SR$'+$.'$*)/
It is the trade policy of the economy with the aim of speeding the industrialiation process in the country with the help of e(porting goods for which the nation had got the competitive advantage. This opens domestic market to other foreign markets some polices adopted under this are floating e(change rate, reduced traffic barriers and government supp orts. *ertain countries like "outh =orea adopted it a lot E(port!9riented Industrialiation. $MP*R S-BS$-$*) $)D-SR$'+$.'$*)/
It is an important economic development program in which there is a dependence on import in some nations for development of local business within the very nation. This theory has been plasticied throughout 27th century by the developing nations by import substitution industrialiation employment opportunities is increased for citiens, innovation increased in the countries, decrease in dependency on foreign countries and methods used against this change is import quota and protective tariffs Bim, &., -2773). $mpact o% Economic c!ange on international companies
International companies are the most important factor which backing up the globaliation. "o it affects the most to the economy and became the biggest part for its change. International companies do their operation at the cross point of foreign investment and international trade. They are also known as 5ultinational *orporation it is that type of firm which organie and control production in at least two countries *aves, H., E., -1GG8). There has been a huge investment in recent years which had boomed the property and stock market and became a huge push for consistent growth of Europe and :orth America but beside these, investments have also brought a great economic development in 5iddle East, Africa and Bapan. $mpact o% economic c!ange on S'B$C and !o0 management cop up t!roug! t!e situation
The "A&I* en+oys goodwill as it has a strong brand image among %etrochemicals *ompany in the ulf region. It has seen a huge profit in last two years and due to the backup by "audi overnment "A&I* en+oys remarkable credibility and influence. The company have a huge sie and incorporation which makes it reaps good economies of scale.
sustainable products to the world. The innovation in the company looks beyond of +ust providing product but also looking ahead to interact with communities, stake holders and customers as well as relate themselves to the environment and various other ethical issues. ith the new organiation structure they are now capable of meet more of customers requirement and with very strong global buying power, improved process and policies made it possible for the company to further integrate the global functions "A&I* ann ual report, -277G).
