48 Part 1: Strategic Management Inputs
Income Distribution
Understanding how income is distributed
within and across populations informs firms
of different groups’ purchasing power and
discretionary income. Of particular interest
to firms are the average incomes of house-
holds and individuals. For instance, the
increase in dual-career couples has had a
notable effect on average incomes. Although
real income has been declining in general in
some nations, the household income of dual-
career couples has increased, especially in the
United States. These figures yield strategically
relevant information for firms. For instance,
research indicates that whether an employee
is part of a dual-career couple can strongly
influence the willingness of the employee to
accept an international assignment. However,
because of recent global economic conditions, many companies were still pursuing inter-
national assignments but changing them to avoid some of the additional costs of funding
expatriates abroad.^50
The growth of the economy in China has drawn many firms, not only for the low-
cost production, but also because of the large potential demand for products, given its
large population base. However, in recent times, the amount of China’s gross domestic
product that makes up domestic consumption is the lowest of any major economy at
less than one-third. In comparison, India’s domestic consumption of consumer goods
accounts for two-thirds of its economy, or twice China’s level. As such, many western
multinationals are interested in India as a consumption market as its middle class
grows extensively. Although India has poor infrastructure, its consumers are in a better
position to spend. Because of situations such as this, paying attention to the differ-
ences between markets based on income distribution can be very important.^51 These
differences across nations suggest it is important for most firms to identify the eco-
nomic systems that are most likely to produce the most income growth and market
opportunities.^52 Thus, the economic segment is a critically important focus of firms’
environmental analysis.2-3b The Economic Segment
The economic environment refers to the nature and direction of the economy in which
a firm competes or may compete.^53 In general, firms seek to compete in relatively stable
economies with strong growth potential. Because nations are interconnected as a result
of the global economy, firms must scan, monitor, forecast, and assess the health of their
host nation as well as the health of the economies outside it.
It is challenging for firms studying the economic environment to predict economic
trends that may occur and their effects on them. There are at least two reasons for this.
First, the global recession of 2008 and 2009 created numerous problems for companies
throughout the world, including problems of reduced consumer demand, increases in
firms’ inventory levels, development of additional governmental regulations, and a tight-
ening of access to financial resources. Second, the global recovery from the economic
shock in 2008 and 2009 continues to be persistently slow and relatively weak compared
to previous recoveries. Firms have to adjust not only to the economic shock and try to
recover from it, they have to respond to what appears to be an unpredictable recovery.The economic
environment refers to the
nature and direction of the
economy in which a firm
competes or may compete.
The illustration above shows the vast differences in income
distribution around the world.global wealth distribution.PNG