CLASSIFYING THE WORLD

There are over 200 countries in the world. In a changing world, changes in nation states sometimes happen quite easily and sometimes with great difficulty. Namibia emerged in 1990 after a considerable struggle to gain independence from South Africa. Yugoslavia has been ripped apart during the 1990s, making the end result into country divisions difficult to predict. On the other hand, the division in 1993 of Czechoslovakia into two countries, based on Czech lands and Slovakia, was negotiated peacefully.

Classifying by Gross National Product

It would be possible to rank all the countries in the world according to the total size of their gross national product (GNP). GNP data is available for most countries in the world, making it one of the most widely available statistics, and this makes it helpful in comparative

analysis.

To facilitate comparison, it is necessary to convert the total GNP for every country to a common currency. It is usual to use US dollars ($), but you should note that, as exchange rates vary, often considerably, the process of conversion causes some distortions and can give different rankings from one time period to another.

GNP figures give an indication of the likely business opportunities in a country. In a very general way, countries with high GNPs will provide larger market sizes than countries with lower GNPs. However, the figures themselves can be misleading as some countries include certain items, whereas others omit them.

A more useful approach than using total GNP is to compare countries on the basis of per capita GNP (GNP per person in the total population). This allows account to be taken of the number of people living in a country to give a more realistic view of spending power. Using this basis, we can divide countries into high income and low income countries. We need to take some dividing line between high and low. This is open to debate, but if, say, $5,000 per capita were taken, we would obtain the breakdown shown in the following two tables.

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Examples of High Income Countries

Australia Libya

EU countries (exc. Portugal) New Zealand

EFTA countries Oman

Israel Saudi Arabia

Japan United Arab Emirates

Kuwait United States of America

Examples of Low Income Countries

Afghanistan Ethiopia Pakistan

Bangladesh Gambia Malaysia

Brazil Ghana Uganda

Myanmar (Burma) India Vietnam

Chad Kenya Zaire

Classifying by Stage of Economic Development

As mentioned when looking at world trade shares earlier in the study unit, there are a number of different ways of grouping countries by stage of economic development. For our purposes we do not need to go into great detail. Remember that one of the most common ways of classifying by stage of economic development is into lesser-developed countries (LDCs), newly industrialised countries (NICs) and highly industrialised countries.

 Lesser-developed countries

This group includes most of sub-Saharan Africa, some of Asia and South America.

These countries are poor, have low GNPs and often lack many of the conditions for economic development. In particular, they might lack capital, trained and well educated workers and managers, natural resources (for example, good agricultural land, energy sources, and raw materials), a developed infrastructure of transport and

communications and political stability.

On the face of it, LDCs offer little encouragement for business. They are often associated with greater environmental uncertainty as political regimes can change abruptly, this, linked with low market size, discourages long-term investment by international companies.

There are, however, some market opportunities and sometimes the hope of growth in the future. Opportunities can result from the spending associated with economic aid packages from richer countries or projects financed through loans from institutions like the World Bank.

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 Newly industrialised countries

In relative terms, this group would include the South-East Asia countries of Singapore, South Korea and Taiwan. They are sometimes called the S.E. Asian tigers.

There are considerable variations in the industrial development of the NICs. During the development process some countries, for example Brazil, have run into substantial economic difficulties. This can result in high inflation rates, balance of payments difficulties and the imposition of government controls on foreign exchange.

NICs can offer considerable business opportunities. If their development is successful they will usually be growing rapidly. This growth gives increased market opportunities for consumer and industrial products.

NICs also pose something of a threat. In the process of growth, they might aggressively develop their production capabilities as well as their approach to

exporting. They might take some export markets from other established exporters and may even penetrate domestic markets of the more developed nations. In addition, NICs often provide a low cost base for production. Moving production to such

countries as Taiwan reduces employment opportunities and GNP in the more advanced countries, forcing them, in turn, to move increasingly into more sophisticated products and services with higher amounts of added value.

 Highly industrialised countries

This group would include the Triad, but goes wider. One manifestation of the major industrialised nations is the so called G7, Canada, France, Germany, Italy, Japan, the United Kingdom and the United States, who, as the seven wealthiest nations in the world, meet once a year to discuss economic and political issues. The continued attendance of Russia has raised the expectation that it will eventually be asked to join.

Other countries, for example Australia, could be included in the highly industrialised country group.

This group of countries is especially attractive to business. They have high levels of income spent on a variety of consumer and industrial goods and, whilst there are various restrictions placed on exports to these countries (e.g. tariffs, quotas, technical standards and health and safety requirements), they are usually much more open to international trade than the LDCs and NICs.

The sheer attractiveness of this group of countries also results in them being very difficult markets. The existing companies fight hard to maintain market share and they are usually very aggressive towards new entrants into their markets. The Japanese market is usually portrayed as particularly difficult. This is partly the result of very competitive domestic (i.e. Japanese) companies, partly the result of strong cultural differences between Japan and the rest of the world, partly the result of Japanese restrictions, and partly the result of poor quality marketing by companies attempting to enter the Japanese market.

Recent changes in the China and India must not be underestimated – growth in these countries is on the verge of surpassing all known records. It is now the world’s third largest economy and is likely to be the largest by the turn of the century. However, this growth is not equal across the whole country. Major growth has generally been limited to the coastal regions where approximately one quarter of the population lives and where income growth is approaching 10% per year, whilst inland China should perhaps be included in the LDC category. This will, of course, present particular challenges to international business.

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