International Business: Opportunities and Challenges in a 

Flattening World, 1e
By Mason Carpenter and Sanjyot P. Dunung

© Sanjyot Dunung 2011, published by Flat World Knowledge 4-1

 This work is licensed under the
Creative Commons Attribution-Noncommercial-Share Alike 3.0 Unported License.
To view a copy of this license,
visit http://creativecommons.org/licenses/by-nc-sa/3.0/or send a letter to
Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA

© Sanjyot Dunung 2011, published by Flat World Knowledge 4-2

 Chapter 4
World Economies

© Sanjyot Dunung 2011, published by Flat World Knowledge 4-3

 Learning Objectives

• Understand how economies are classified

• Evaluate the statistics used in classifications: GNP, GDP, PPP as well as
HDI, HPI, GDI, and GEM
• Understand what the developed world is
• Identify the major developed economies
• Understand what the developing world is

© Sanjyot Dunung 2011, published by Flat World Knowledge 4-4

 Learning Objectives

• Identify the major developing economies and regions

• Understand what the emerging markets and BRIC countries are
• Identify key emerging markets

© Sanjyot Dunung 2011, published by Flat World Knowledge 4-5

 Classification of Economies

• When evaluating a country, a manager is assessing:

– The country’s income and the purchasing power of its people
– The legal, regulatory, and commercial infrastructure
– The sophistication of the business environment

© Sanjyot Dunung 2011, published by Flat World Knowledge 4-6

 Statistics Used in Classifications

• Gross domestic product (GDP): The value of all the goods and services
produced by a country in a single year
• Per capita GDP: The value of the GDP divided by the population of the
country
– This is referred to as the nominal per capita GDP
• GDP per person: The value of the GDP adjusted for purchasing power
– Helps managers understand how much income local residents have

© Sanjyot Dunung 2011, published by Flat World Knowledge 4-7

 Statistics Used in Classifications

• Purchasing power parity (PPP): An economic theory that adjusts the ex-
change rate between countries to ensure that a good is purchased for the
same price in the same currency

© Sanjyot Dunung 2011, published by Flat World Knowledge 4-8

 Figure 4.3 - Per Capita GDP (Nominal) versus Per
Capita GDP (PPP) of Select Countries (2010)

© Sanjyot Dunung 2011, published by Flat World Knowledge 4-9

 Human Development Index (HDI)

• Human development index (HDI): A summary composite index that mea-

sures a country’s average achievements in three basic aspects of human
development: health, knowledge, and a decent standard of living
• Human poverty index (HPI): A composite index that uses indicators of the
most basic dimensions of deprivation: a short life (i.e., longevity), lack of
basic education (i.e., knowledge), and lack of access to public and private
resources (i.e., decent standard of living)

© Sanjyot Dunung 2011, published by Flat World Knowledge 4-10

 The Developed World

• Developed economies: Also known as advanced economies, these coun-

tries are characterized as postindustrial with high per capita incomes,
competitive industries, transparent legal and regulatory environments,
and well-developed commercial infrastructures

© Sanjyot Dunung 2011, published by Flat World Knowledge 4-11

 The United States

• The United States is the fourth-largest country in the world—after Russia,

China, and Canada
• The United States is the world’s largest single-country economy and ac-
counts for nearly 25 percent of the global gross domestic product (GDP)
• The strength of the U.S. economy is due in large part to its diversity
• The United States has a service-based economy. In 2009, industry ac-
counted for 21.9 percent of the GDP

© Sanjyot Dunung 2011, published by Flat World Knowledge 4-12

 The United States

• Services (including finance, insurance, and real estate) for 76.9 percent;
and agriculture for 1.2 percent
• Bull market: A market in which prices rise for a prolonged period of time
• Bear market: A market in which prices steadily drop in a downward cycle

© Sanjyot Dunung 2011, published by Flat World Knowledge 4-13

 Germany

• Germany, a member of the EU (European Union), has the fifth-largest

economy in the world
• The country is a leading exporter of machinery, vehicles, chemicals, and
household equipment and benefits from a highly skilled labor force
• It is the largest and strongest economy in Europe
• Services drive the economy, representing 72.3 percent (in 2009) of the to-
tal GDP
• Industry accounts for 26.8 percent of the economy, and agriculture repre-
sents 0.9 percent

© Sanjyot Dunung 2011, published by Flat World Knowledge 4-14

 Japan

• Japan’s post–World War II success has been the result of a well-crafted

economic policy closely administered by the government in alliance with
large businesses
• It also benefits from its highly skilled workforce
• Japan has very few mineral and energy resources and relies heavily on im-
ports to bring in almost all of its oil, iron ore, lead, wool, and cotton. It is
the world’s largest importer of numerous raw materials including coal,
copper, zinc, and lumber
• As with other developed nations, services lead the economy, representing
76.5 percent of the national GDP, while industry accounts for 21.9 percent
of the country’s output
© Sanjyot Dunung 2011, published by Flat World Knowledge 4-15
 Developing World

• Developing world: Countries that rank lower on various classifications in-

cluding GDP and the HDI
– These countries tend to have economies focused on one or more key industries
and tend to have poor commercial infrastructure
– The local business environment tends not to be transparent, and there is usu-
ally a weak competitive industry
• Developing countries sometimes find that their economies improve and
gradually they become emerging markets

© Sanjyot Dunung 2011, published by Flat World Knowledge 4-16

 Developing World

• Focusing only on today’s political, economic, and social conditions distorts

the picture of what these countries have been and what they might be-
come again
• Developing economies typically have poor, inadequate, or unequal access
to infrastructure

© Sanjyot Dunung 2011, published by Flat World Knowledge 4-17

 Major Developing Economies and Regions

• The Middle East

• Africa
• Nigeria

© Sanjyot Dunung 2011, published by Flat World Knowledge 4-18

 How Do Developing Countries Become Emerg-
ing Markets?

• A developing country, in order to evolve into an emerging market, must:

– Seek to implement transparency in its government as well as in its political and
economic institutions to help inspire business confidence in its country
– Develop the local commercial infrastructure and reduce trade barriers to at-
tract foreign businesses
– Educate the population equally and create a healthy domestic workforce that’s
both skilled and relatively cheap
• First-mover advantage: The benefit that a company gains by entering
into a market first or introducing a new product or service before its com-
petitors
© Sanjyot Dunung 2011, published by Flat World Knowledge 4-19
 What Exactly Is an Emerging Market?

• Emerging market: An evolving definition that is currently viewed as a

country that can be defined as a society transitioning from a centrally
managed economy to a free market-oriented-economy, with increasing
economic freedom
– Gradual integration within the global marketplace
– An expanding middle class
– Improving standards of living, social stability, and tolerance
– An increase in cooperation with multilateral institutions

© Sanjyot Dunung 2011, published by Flat World Knowledge 4-20

 Key Emerging Markets

• Asia
– China
– India
• Europe
– Russia
• Africa
– South Africa
• Latin America
– Brazil

© Sanjyot Dunung 2011, published by Flat World Knowledge 4-21