BUS114 GLOBAL ECONOMIESANDINTERNATIONAL MARKETSSession 3The Global EconomyMondays 9.30amonline synchronous classDr Alex Muresandralex@iconcollege.ac.ukYOUR TASKS FOR WEEK 3 were:• Read the articles posted on Moodle• Get hold of the books / start reading journal articlesrelated to “globalisation”, “globalization”,“glocalisation, “glocalization”, “the impact ofglobalisation on corporations word-wide”, “themain drivers of globalisation”• Familiarise yourselves with the HarvardReferencing System• Watch the free webinar by Prof Svend Hollensen onWednesday Please…• Switch off microphones• Switch off cameras• Make note of your questions for theQ&A session• Breaks• Plan B – should technology collapse ateither end – PPT slides have beenuploaded via MoodleThis session is recordedLast week we covered:• Globalisation from various angles• Local, dual-country, international, globalmarketing• Glocalisation• The main drivers of globalisation• The main reasons why companies expand abroadSession Objectives:• Present the opportunities LSEs and SMEs have in aglobal marketplace• Explain / detail the main global economymeasurement tools• Recognise the importance of economic growth• Identify current trends in the changing worldeconomy• Describe the growing importance of collaborationsin international trade• Cover the IMF’s predictions for 2021Session Outline2nd guest session last week – Glocalisationhttps://www.pearson.com/se/Nordics-Higher-Education/webinars/Virtual-guest-lecture-svend-hollensen-marketing-2.htmlFigure 1.7 The glocalisation framework Figure 1.9 The global integration/market responsiveness grid: the futureorientation of LSEs and SMEs EXAMPLES IMPORTANCE OF GM• Activities in the international arena are ofeminent importance to companies inachieving maximum growth potentialE.g.:For German and EU companies, 94% of potentialis outside Germany75% of world market potential is outside the USAbout 80-90% of Coca-Cola’s operating income,Nike’s operating income is generated outsidethe USFor Japanese companies, 85% of potential isoutside JapanGlobal sales: Ralph Lauren (USA) 1.Ralph LaurenOperates through 3 segments:• Wholesale• Retail• Licensing. wholesale sales – major department stores + specialty storesthroughout North America, Europe, Asia, Latin Americaretail sales in North America, Europe, Asia, Latin America:– concession-based shop-within-shops in Asia + Europe– e-commerce channel in North America, Europe + Asialicenses to unrelated 3rd parties the right to operate retail stores and to use itstrademarks in connection with making and selling designated products:apparel, eyewear, fragrances in specified geographical areas for specifiedperiods. (Source: Diamond, Diamond and Diamond Litt, 2015) Number of retail stores of Polo Ralph Lauren worldwide as of 2020, by region(Source: Statista, Sept 28, 2020)A total of 138 stores in operation around the world as of March 28, 2020The majority of Polo Ralph Lauren’s sales are made in North America.TheGlobalEconomyMeasuring the size of theglobal economyThe common method of measuring the sizeof an economy = GDP (Gross DomesticProduct)GDP = the market value of total output ofgoods and services produced within anation, by both residents and non-residents,over a period of time, usually a year= is in country’s national currency= normally the US$ is used for internationalcomparisonCombined, these countries produce 67% ofthe world’s total GDP of $87.5 trillionThe European Union is a trade and monetaryunion, not a country. But if it were, it wouldbe the second largest = GDP $19.6 trillionUnited States, EU, and China combined:= GDP $54 trillion (62% of the world’s totaloutput)= impact on the global economy(Source: IMF, 2020a)(Source: IMF, 2020a)Three Ways to Measure GDP by Country1) Official Exchange Rate (OER)= used by the IMF= set by the country’s government or centralbank= how much the bank will give you inexchange for one unit of your country’scurrency= useful when comparing two emergingmarket countries with each other, or twodeveloped economies with each other= useful to compare the country’s economicoutput over time, as long as its exchange ratehas not changed dramatically(Source: IMF, 2020a)Three Ways to Measure GDP by Country2) Purchase Power Parity (PPP)= more accurate comparisons of theeconomies of two countries= most important when comparingemerging market countries to developedmarket countries= compensates for OERs changes overtime= accounts for government manipulationof OERs= can be very subjectiveGDP using PPP = calculated by determiningwhat each item purchased in a country wouldcost if it were sold in the USA. Those costs arethen added up for the total goods and servicesproduced in that country in the given year (Source: IMF, 2020a)Three Ways to Measure GDP by Country2) Purchase Power Parity (PPP)“The Economist” created the BigMac Index to determine wherecurrencies are at their correctlevel according to PPP• The IMF lays out GDP byCountry using PPP• The World Bank uses GDP byPPPIn 2018, China’s economicoutput using the PPP methodwas $25.2 trillion.If the PPP method is used,China replaces the UnitedStates as the world’s largesteconomy.(Source: IMF, 2020b)(Source: World Bank, 2020)China – upper-middle-income countryhttps://www.youtube.com/watch?v=iLbO3f7c5NMWorld Bank: China has made very significant efforts in poverty alleviationMartin Raiser, World Bank country director for ChinaChina – upper-middle-income countryhttps://www.youtube.com/watch?v=r4ibXzY4vPwWorld Bank official applauds China’s economic reform policiesVictoria Kwakwa, Vice President for East Asia and Pacific at World BankThree Ways to Measure GDP by Country3) GDP per capita= a good way to compare theeconomic output of a country asexperienced by its residents= divides a country’s economicoutput by its population= can be used to compare anycountry with another oneGDP as an indicator of the standard of living – controversyShadow Economy / Grey Economy= large % GDP in developing economies= 10-15% GDP in rich countries= increases during economic crises periods-ex. buying flowers from sellers at traffic lights= gov decides to increase taxes to make upfor non-accounted money= gov actions fight entrepreneurshipGDP = the absolute size of an economy and willindicate that, in nominal termsGDP = only measures activity that takes placein the formal, officially recorded, economyhttps://www.youtube.com/watch?v=yrQOKwxBW88https://www.youtube.com/watch?v=yrQOKwxBW88The article is uploaded via MoodleWhat else is not included in GDP calculations?– sales of used goods and sales from inventories of goods that wereproduced in previous years– the negative effects of economic growth on society, such as climatechange and income inequality– for ex, it takes a positive count of the cars we produce but does notaccount for the emissions they generate; it adds the value of the sugarlaced beverages we sell but fails to subtract the health problems theycause; it includes the value of building new cities but does not discount forthe vital forests they replace– the distribution of income across societyFails to adjust to 2020 (social media sales, service economies)(Source: Kapoor and Debroy, 2019)ROBERT KENNEDY – presidential speech 1968“it [GDP] measureseverything in short,except that which makeslife worthwhile.”Source: Kapoor and Debroy (2019)Ease of LivingIndex= measures:– quality of life,– economic abilityand– sustainability.The world’s 4th largest economygrew 6.8% in 2018, 7.2% in 2017, and 8.2% in 2016IndiaSource: Kapoor and Debroy (2019)TheMainEconomicSystemsMAINECONOMIC SYSTEMS– free market or capitalist– planned or commandeconomic– mixed system(incl. transitional economies)The Free Market /Capitalist System• (sometimes called laissez-faire economy)• the preferred system in today’s society• holds that the economy is strongestwhen all the government does is protectindividuals’ rights.• Laissez-faire is French for “let do” or“leave us alone.”Source: CFI, 2020ahttps://www.youtube.com/watch?v=RLIlodkJsOIThe (Centrally)Planned System• the means of production are owned bythe state ‘on behalf of the people’• capital formation – the formation ofproducer goods, which are necessary toproduce other goods – is determined bythe central planners• prices of goods sold by the state aredetermined by the planning authority.• planning is centralised Source: CFI, 2020bThe MixedEconomic System• combines the elements of amarket economy and theelements of a planned economy• a synthesis of socialismand capitalism, which containsboth private enterprises andpublic enterprises• most modern economiesSource: CFI, 2020cIceland (57%)Sweden (52%)France (52.8%)United Kingdom(47.3%)United States (38.9%)Russia (34.1%)India – (27%)China – (20%)TheCOVID-19PandemicDeep Downturn in 2020, Sluggish Turnaround in 2021Source: IMF, 2020cUncertainty.• The length of the pandemic and required lockdowns• Voluntary social distancing, which will affect spending• Displaced workers’ ability to secure employment, possibly in different sectors• Scarring from firm closures and unemployed workers exiting the workforce, which maymake it more difficult for activity to bounce back once the pandemic fades• The impact of changes to strengthen workplace safety—such as staggered work shifts,enhanced hygiene and cleaning between shifts, new workplace practices relating toproximity of personnel on production lines—which incur business costs• Global supply chain reconfigurations that affect productivity as companies try toenhance their resilience to supply disruptions• The extent of cross-border spillovers from weaker external demand as well as fundingshortfallsFor the first time, all regions are projectedto experience negative growth in 2020.Source: IMF, 2020c Source: IMF, 2020c Source: IMF, 2020c Recap:• Presented the opportunities LSEs and SMEs havein a global marketplace• Explained / detailed the main global economymeasurement tools• Identified some of the current trends in thechanging world economy• Overviewed the growing importance ofcollaborations in international trade• Covered the IMF’s predictions for 2021References (on Moodle or online http provided)CFI (2020a) The market economy, (online) https://corporatefinanceinstitute.com/resources/knowledge/economics/definition-marketeconomy/, accessed October 22, 2020CFI (2020b) The command economic system, (online)https://corporatefinanceinstitute.com/resources/knowledge/economics/what-is-command-economy/, accessed October 22, 2020CFI (2020c) The mixed economic system, (online) https://corporatefinanceinstitute.com/resources/knowledge/economics/mixed-economicsystem/, accessed October 23, 2020International Monetary Fund (2020a) Gross Domestic Product, Current Prices – U.S. Dollars, (online)https://www.imf.org/en/Publications/SPROLLs/world-economic-outlook-databases#sort=%40imfdate%20descendingAccessed May 28, 2020International Monetary Fund (2020b) Gross Domestic Product, Current Prices, Purchasing Power Parity; International Dollars (All Countries),(online) https://www.imf.org/en/Publications/WEO/weo-database/2020/October/select-country-group, accessed October 19, 2020International Monetary Fund (2020c) World Economic Outlook Update, June 2020, accessed October 24, 2020Kapoor, A. and Debroy, B. (2019) GDP Is Not a Measure of Human Well-Being, Harvard Business Review, (online)https://hbr.org/2019/10/gdp-is-not-a-measure-of-human-well-being, accessed November 3, 2020Putnins, T. and Sauka, A. (2015) Measuring the shadow economy using company managers, Journal of Comparative Economics, 2015, vol.43, issue 2, pp. 471-490World Bank (2020) GDP, PPPhttps://data.worldbank.org/indicator/NY.GDP.MKTP.PP.KD?most_recent_value_desc=true, (online) accessed October 21, 2020BOOK READINGACADEMIC JOURNAL ARTICLE READINGMARKET REPORTS READINGTHOUSANDS OF FREE ACADEMICPUBLICATIONS (JOURNAL ARTICLES)GOOGLE SCHOLARFORMATIVEASSESSMENTSUBMISSIONDEADLINES:Week 9 – RESEARCHTOPICWEEK 13 – LITERATUREREVIEW• SUBMITTING AFTER THEDEADLINE = NO FEEDFORWARD• BRING WORK TO CLASS FORDISCUSSION• DO YOUR WEEKLY HOMEWORK
