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Analyzing Economic Environment & Business Potential

Analyzing Economic Environment & Business Potential
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  • 0:03 Economic Environments
  • 0:30 Population Information
  • 3:20 Health of the Economy…
  • 5:14 Lesson Summary
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Lesson Transcript
Instructor: Nick Chandler
When any organization is looking to expand abroad, it first needs to find the right place. Data on the economic environment can show the risks and benefits of entering into a new market. This lesson looks at the data organizations can get about the economic environment to decide where to expand.

Economic Environments

Imagine you own a company that has grown into a well-known national brand. You know it's time to look for markets abroad. How do you choose the right one? Which is the best option? You'll need to know about the markets and competition in each country, but you'll also need to know about the economic environment. In fact, the economic environment may hold the key to whether your company survives or fails when it takes the step towards becoming international.

Population Information

Okay, let's now have a look at some of the questions an organization may have about the economic environment and see what the statistics tell us.

  • Will people in the country be able to afford my product?

The cost of living statistic shows how much money people need for the basic things in life such as food, housing, and so forth. A high cost of living might indicate to the organization the potential for high costs in transportation, office rental, heating, etc. However, it might also show that the population on average receives a high salary, which means they have more money to spend on the product. The best way to be sure of this is to look at the figure for the standard of living as it shows how much money people have available after taxes to spend, called disposable income, and is shown as an average per person, which is called per capita. For example, in 2015, the average disposable income per capita was $41,071 a year in the U.S., whereas in France, this figure was $29,759 a year. By looking at the disposable income and the cost of living, an organization can see whether the population of a country can afford its product or service.

  • What is the age distribution of the population?

The age distribution shows the amount of people in young, middle, and old age. This is actually a very important question as it affects two key areas of the organization. Firstly, the age distribution of population shows the market the organization will sell to, that is, what products will be preferred in a country. For example, an aging population may spend less money on nights out than a younger population, but spend more on healthcare products. Secondly, the age distribution reveals the available workforce. An aging workforce might mean less people available for work, which could cause potential staffing problems for the organization.

  • How much will it cost to make the product in the country?

The unit labor cost indicates the price of labor for a single unit of output, such as a single product. This is important as labor is the biggest cost for most organizations. The U.S. Bureau of Labor Statistics calculates unit labor cost on a national level, but it can also be calculated for a particular industry or region. This tells the organization how much it costs in labor for competitors in the country. The organization can use this figure to calculate if it can make the product more cheaply than competitors.

  • How many skilled workers are there in the country?

The literacy rate gives an indication of the quality of the education of a population. The pupil/teacher ratio is a further test of the quality of the education system as it shows how much attention is given to each student. The amount that a government spends on education is also an indicator, called public expenditure. Examination results and proportions entering higher education may also give an organization some ideas of how many qualified and skilled workers may be available in a country.

Health of the Economy Information

In addition to questions about the population of an economic environment, organizations should also have questions about the health of the economy.

  • Is the economy growing or declining?

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