Introduction

The Global Economic E i Environment

Chapter p topics: p An overview of the world economy A survey of f economic i system t types The stages of market development The balance of payments
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Global Marketing (Global Edition) Chapter 2

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Marketing Strategy & Environmental Framework

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2011 Pearson Education, Inc.

The World Economy An Overview

In the early century, t economic i integration was at 10% today 10%; t d it is i 50% EU and NAFTA are very integrated Global competitors p have displaced or absorbed local ones
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The World Economy -An Overview

The new realities: Capital movements have replaced trade as the driving force of the world economy Production has become uncoupled from employment l t The world economy, not individual countries, is the dominating factor 75-year struggle between capitalism and socialism has almost ended e-commerce diminishes the importance of national barriers and forces companies to re-evaluate re evaluate business models 2-6
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20th

Economic Systems
Resource Allocation
Market Private
Market p capitalism

Market Capitalism
Individuals and firms allocate resources Production resources are privately owned Driven by consumers Governments role is to promote competition among firms and ensure consumer protection
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Command
Centrally planned capitalism Centrally planned socialism

Resource Ownership
State

Market socialism

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Western Market Systems

Type of fS System Anglo-Saxon Model Key Characteristics Ch i i Private ownership Free enterprise Minimal social safety net Social Market y Model Economy Nordic Model Private ownership Inflexible employment p y policies, social partners Mix of state and private ownership Large safety net High taxes
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Centrally Planned Socialism

Opposite of market capitalism State holds broad powers to serve the public interest; d d what decides h goods d and d services are produced d d and d in what quantities Consumers can spend only what is available Government owns entire industries and controls distribution Demand typically exceeds supply Little reliance on product differentiation, advertising, pricing strategy China, India, and the former USSR now moving towards some economic freedom
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C Countries i US, Canada, Great Britain Germany, France, Italy y Sweden, Norway

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Centrally Planned Capitalism

Economic system in which command resource allocation is used extensively in an environment of private resource ownership Example: Swedish government controls 2/3 of all spending; a hybrid of CPS and capitalism

Economic Freedom
Rankings of economic freedom among countries free free , mostly mostly free free, mostly mostly unfree unfree , repressed repressed Variables considered include such things as: Trade policy Taxation policy Capital flows and foreign investment Banking policy Wage g and price p controls Property rights Black market
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Economic Freedom 2011 Rankings

Free
1. 2. 3. 4 4. 5. 6. 7. 8. 9. 10. Hong Kong Singapore Australia New Zealand Switzerland Canada Ireland Denmark United States Bahrain

Stages of Market Development

The World Bank has defined four categories of development using Gross National Income (GNI) as a base BEMs, identified d f d 10 0 years ago, were countries in Central Europe, Latin America, and Asia that were to have rapid economic growth Today, the focus is on BRIC: Brazil, Russia, India, and China

Repressed
169. 170. 171. 172. 173. 174. 175 175. 176. 177. 178. 179. Turkmenistan Timor-Leste Iran Dem. Rep. Congo Libya Burma V Venezuela l Eritrea Cuba Zimbabwe North Korea

Not ranked: Afghanistan, Iraq, Liechtenstein, Sudan 2-13

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Low Income Countries Low-Income

GNP per capita of $996 or less Characteristics Limited industrialization High Hi h percentage t of f population l ti in i farming High birth rates Low literacy rates Heavy reliance on foreign aid Political instability and unrest Concentrated in Sub-Saharan Africa Uzbekistan and Turmenistan
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Lower-Middle-Income Countries
GNI per capita: $996 to $3,945 Characteristics Rapidly p y expanding p g consumer markets Cheap p labor Mature, standardized, laborintensive industries like footwear, textiles and toys BRIC nations are India, China
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Upper-Middle-Income Countries
GNP per capita: $3 $3,946 946 to $12 $12,195 195 Also called newly industrializing economies eco o es ( (NIEs) s) Characteristics: Rapidly industrializing, industrializing less agricultural employment Increasing urbanization Rising wages High literacy rates and advanced education Lower wage costs than advanced countries
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Mktg Opportunities in LDCs

Characterized by a shortage of goods and services i Long-term opportunities must be nurtured in these countries
Look beyond per capita GNP Consider the LDCs collectively, rather than individually Consider first mover advantage Set realistic deadlines
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Chileancoppermine

Examples: Brazil, Russia, Malaysia, Chile, Venezuela, Hungary, Mexico

Mistaken Assumptions about LDCs

1. The poor have no money 2 The poor will not waste 2. waste money on nonnon essential goods 3 Entering developing markets is fruitless 3. because goods there are too cheap to make a profit 4. People in BOP (bottom of the pyramid) countries cannot use technology 5 Global 5. Gl b l companies i doing d i business b i in i BOP countries will be seen as exploiting the poor
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High-Income High Income Countries

GNI per capita: $12 $12,196 196 or more Also known as advanced, developed, industrialized, or postindustrial countries Characteristics:
Sustained economic growth through disciplined innovation Service sector is more than 50% of GNI H Households h ld have h high hi h ownership hi levels l l of f basic b i products d t Importance of information processing and exchange Ascendancy y of knowledge g over capital, p , intellectual over machine technology, scientists and professionals over engineers and semiskilled workers Future utu e o oriented e ted Importance of interpersonal relationships
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G-8 G 8, The Group of Eight

Goal of global economic stability and prosperity
U.S. U S Japan Germany France Britain Canada Italy Russia (1998)
2011 G-8 Leaders in Deauville, France
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Orgn for Econ Cooperation and Development (OECD)

30 nations Post-WW II European origin Canada US (1961), Canada, (1961) Japan (1964) Promotes economic growth and social well-being ll b i Focuses on world trade, global issues, labor market deregulation Anti-bribery y conventions
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The Triad
US US, Western Europe Europe, and Japan Represents 75% of world income Expanded Triad includes all of North America and the Pacific Rim and most of Eastern Europe Global companies p should be equally q y strong g in each part
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Product Saturation Levels

The % of potential buyers or households who h own a product d t India: 20% of people have telephones Autos: 1 per 43,000 Chinese; 21 per 100 ; 8 per p 1,000 , Indians Poles; Computers: 1 PC per 6,000 Chinese; 11 PCs per Poles; 34 PCs per EU citizen

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Balance of Payments
Record of all economic transactions between the residents of a country and the rest of the world Current account: record of all recurring g trade in merchandise and services, and humanitarian aid trade t d d deficit: fi it negative ti current t account t trade surplus: positive current account Capital C it l account: t record d of f all ll long-term l t direct investment, portfolio investment, and capital flows
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Balance of Payments

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Top Exporters and Importers in 2009

Overview of International Finance

Foreign exchange makes it possible to d business do b i across the th boundary b d of fa national currency Currency of various countries are traded (spot) p ) and future for both immediate ( (forward) delivery Currency risk adds turbulence to global commerce

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Foreign Exchange Market Dynamics

Supply and demand interaction Country sells more goods/services than it buys There is a greater demand for the currency The currency will appreciate in value

Purchasing Power Parity 2008 Big Mac Index

Exchange Risks and Gains in Foreign Transactions

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Is a certain currency over/under-valued compared to another? h ? Assumption is that the Big Mac in any country should equal the price of the Big Mac in the US after being converted to a dollar price 2-30
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2011 Pearson Education, Inc.

Managing Economic Exposure

Economic exposure p refers to the impact p of currency fluctuations on the present value of the p y future cash flows companys Two categories of economic exposure:
Transaction exposure is from sales/purchases Real operating exposure arises when currency fluctuations, together with price changes, alter a companys future revenues and costs
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Managing Economic Exposure

Numerous techniques and strategies h have been b developed d l d to t reduce d exchange rate risk
Hedging involves balancing the risk of loss in one currency with a corresponding gain i in i another th currency Forward Contracts set the price of the exchange h rate t at t some point i ti in th the f future t to eliminate some risk
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Population & Demographics

Natural Environment
Shortage of raw materials Increased energy costs Anti-pollution A i ll i pressures Governmental protections
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Size Si Growth rate Age distribution Ethnic h i mix i Educational ducat o a levels

H Household h ld patterns Regional characteristics Movement

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Natural Environment
Nature deteriorates - global concern Air & water pollution - dangerous levels Companies - practices, protect nature Green products - protect environment Change consumer attitudes - role to protect environment

Technological Environment
1. Accelerated pace of change
Computers, internet - reduce auto pollution

2 2. Unlimited opportunities for innovation

Virtual reality - consumer reactions to products

3. Varying R&D budgets

Content to copy products - slight changes

4. Increased regulation- technological change

Public safety

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2011 Pearson Education, Inc.