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Global Marketing Environments

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Economic Environment
The Rostow Modernization Model:
Economic growth requires advancing from one stage to the other. The modernization
stages are:
Traditional Society Countries in the traditional society are characterized by an economic
structure that is dominated by agriculture. Economic change and improvements are not
sufficient to sustain any growth in per capita output which is low.

Transitional Society The transitional society stage is characterized by increased
productivity in agriculture and modern manufacturing begins to emerge. In manufacturing low
productivity remains the norm.

Take-Off During take-off, growth becomes the norm and improvements in production leads
to the emergence of leading sectors. Incomes rise and new class of entrepreneurs emerge.

The Drive to Maturity In the drive-to-maturity stage, modern technology is fully adopted in
all economic activity, and new leading sectors emerge. The economy demonstrates the
technological and entrepreneurial skill to produce anything it chooses to. The economy looks
beyond the countrys border for development.

High Mass Consumption In the age of high mass consumption, leading sectors shift
towards durable goods. A surge occurs in per capita income and increased allocation to
social welfare programmes. The masses can afford goods beyond food, clothing and shelter.
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Economic Environment
The Marxist-Leninst Model of Economic Development:
According to this model, advancement is a function of the control of means of production, production
outcomes of resource allocation and the development of a mindset devoid of materialist needs.
Primitive Society This stage is characterized by the joint tribal ownership of primitive means
production centered on agricultural tasks.

The Slavery-Based Society This stage emerges as a result of tribes dominance over other
tribes and claim ownership of conquered tribes and their property.

Feudalism This stage is characterized by the feudal lords, who own the land and its dwellers.

Bourgeoisie This stage establishes lucrative means of production and achieves high
productivity at the expense of exploited workers.

Capitalism The shift of production to the industrial sector and in its later stages, by imperialism
where capital loses its national identity by crossing borders.

Imperialism Here capital loses its national identity by crossing borders.

Socialism A transition stage of economic and political development by the disappearance of
private property and its replacement with collective state property.

Communism - A stage of economic and political development which is characterized by state and
cooperative ownership of all means of production and property
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Levels of Economic Development

Developed Countries Highly industrialized countries with well developed
service sectors, mature markets and intense competition. They are
characterized by the World Bank as high-income with a GNP per capita of
US$9,266.

Emerging Markets Countries that are developing rapidly and have great
economic potential. They are characterized by the World Bank as middle-
income countries with a GNP per capita of US$766. to US$9,265.

Developing Countries Countries are primarily agrarian, often neglected
or underserved by the large multinationals and are characterized by the
World Bank as low-income countries with a GNP per capita of less than
US$755.
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Macro and Micro Environment
A countrys economy is based on its sources of
domestic livelihood and the allocation of those
resources. The economic environment can be
viewed from two different angles The Macro
view and the Micro view.
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Macro and Micro Environment
Factors which contribute to the Macroeconomic Environment:
Population and Income
Structure of Consumption
Other economic indicators such as production indicators, prices, finance
Concept of economic advancement
Economic systems
Mutual economic dependence

Factors which contribute to the Microeconomic Environment:
Sources of competition
Competitive advantage

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Evaluation of Economic Environments

S.No

Financial
Considerations
Technical and
Engineering
Feasibility
Considerations

Marketing
Considerations
Economic and Legal
Considerations
Political and Social
Considerations

1
Capital
Acquisition plan

Raw materials
availability

Market size

Legal systems

Internal political
stability
2
Length of Payback
period

Geography / Climate

Market potential
Host government
attitude towards
Foreign
investment

Relations with
neighbouring
countries
3
Projected cash
inflows

Site locations and
access

Distribution costs

Restrictions on
ownership

Political/Social
traditions
4
Projected cash
outflows
Availability of local
labour and
management

Competition

Tax laws

Religious / Racial /
Language factors
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ROI

Infrastructure

Promotion costs

Import / Export
restrictions

Labour organizations
and attitudes
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Monetary
Exchange
considerations
Time taken to
establish sales
channels


Capital flow
restrictions


Skill / technical level
of labour force

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Land title acquisition
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Legal Environment

Countries enact laws to control foreign businesses in their
economies, and some of these laws are discriminatory against
foreign goods and businesses. Laws are sometimes designed to
allow reciprocity with nations on good trading terms with the country.
Extremely favourable laws may be passed to attract foreign
investment.

Laws that are framed for goods/services entering foreign markets
are of various types.
Tariffs.
Antidumping Laws.
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International Laws

International law is a huge area of study. Let us consider certain
areas of international law that are of particular relevance to the
marketer.

Protection of Property Property here refers to the patents,
trademarks, etc

Regional Laws These laws pertain to specific areas involving a group
of countries tie together through some kind of regional co-operation.
Ex: ASEAN
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Disputes
Despite the inclusion of all precautionary clauses, disputes may emerge.
The following are some of the methods used to settle disputes.

Arbitration In arbitration, parties to a dispute agree to take their case to a third
party in the form of agency of independent arbitration. They submit whatever
documents of evidence they feel are relevant and agree to accept the judgement
of the arbitrators waiving their rights to appeal through court systems.

Arbitration has several advantages over litigation. It is a faster process over court
procedures. Results are achieved faster and less expensive as the proceedings
are less complex. The main drawback of international arbitration is that its use
forecloses further appeals.
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Disputes
Judicial Settlement The International Court of Justice will decide on the
dispute submitted to it in accordance with international law and shall use the
sources of international law in the following order:

International Conventions

International Customs

General Principles of Law recognized by civilized nations

Judicial decisions or works of jurists as a subsidiary means for determining the
rules of international law
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Disputes
Negotiations Negotiations are also means of settlement of international
disputes. It is less formal method than judicial settlement. Sometimes
disputes are settled only through negotiations.

Good Offices When two states are not able to resolve their disputes, a
third state may offer its good offices for the same. An international
organization or some individuals may also offer these offices. The third
state/individual/international organization creates a conducive environment
for the settlement of disputes, some general suggestions may be put
forward, but the third party does not take active part in the negotiations.

Mediation In the case of mediation, the third state not only offers its
services but also actively participates in the talks to resolve the dispute

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Political Environment

Political Environment connotes diverse happenings such as civil
difficulties, acts of terrorism against businesses and conflicts
between countries in a particular region. Political stability has been
found to be one of the crucial variables that companies weigh, when
considering going overseas. If risks of violence, restriction of
operations, or restrictions on repatriation of capital and remittances
of profits are high in a particular country, it is necessary to know how
to monitor that countrys ongoing political situation
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Sources of Political Problems

Political Sovereignty This refers to a countrys desire to assert its authority over
foreign businesses through various sanctions. Such sanctions are regular and
therefore predictable. Many of the developing countries impose restrictions on foreign
business to protect their independence. These countries are possessive about their
political freedom and want to protect it at all costs, even if it means going at a slow
economic pace without the help of MNCs. The industrialized nations, whose political
sovereignty has been secure for a long time, require a more open policy for the
economic realities of todays world. In order to reduce unemployment, limit inflation,
deliver health servicesthese countries seek foreign technology. In these countries,
multinationalism of business is politically acceptable and economically desirable.

Political Conflict Several countries in different parts of the world undergo political
conflict of various sorts such as turmoil, internal warPolitical change, sometimes
leads to a more favourable business climate. The effect of political conflict on
business may be direct or indirect. Direct effects would be violence against the firm
such as damaging company property, going on strikesIndirect effects occur
because of changes in the government policy.
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Sources of Political Problems
Political Intervention Political intervention can be defined as a decision
on the part of the host country government that may force a change in the
operations, policies and strategies of a foreign firm. The intervention may
vary from some sort of control to complete takeover, or annexation of the
foreign enterprise. The magnitude of the intervention would vary according
to the companys business in the country and the nature of the intervention.
There are different types of intervention:
Expropriation
Domestication
Exchange Control
Import Restrictions
Market Control
Tax Control
Price Control
Labour Restrictions

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Sources of Political Problems
Expropriation Official seizure of foreign property by a host country whose intention
is to use the seized property in the public interest. Expropriation is recognized by
international law as the right of sovereign states, provided the expropriated firms are
given prompt compensation, at fair market value, in convertible currencies.

Domestication This could be defined as creeping expropriation or a process by
which controls and restrictions placed on the foreign firm gradually reduce the control
of the owners. Although domestication may ultimately lead to expropriation, in a way
it offers a compromise to both parties. The MNC continues to operate in the country
while the host government is able to maintain leverage on the foreign firm through
imposing different controls. Domestication involves several measures:
Gradual transfer of ownership to nationals
Promotion of large number of nationals to higher levels of management
Greater decision making powers accorded to nationals
More products produced locally than imported for assembly
Specific export regulations designed to dictate participation in world markets

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Sources of Political Problems
Exchange Control Countries having difficulties with the balanced of trade often impose
restrictions on the free use of foreign exchange (Ex: Repatriation of funds). The exchange control
may also be an effort to encourage domestic industry.

Import Restrictions This is primarily imposed to protect and support the domestic industries.

Market Control The government of a country sometimes imposes market control to prevent
foreign companies from competing in certain markets.

Tax Control This may be imposed by means of excessive and unconventional taxes on foreign
business. This is primarily done for three reasons.
Indirect way of warning them that they are no longer wanted in that country
When the host country is in dire need of new revenues
When the host government learns that the foreign company has abused differences in international taxation
and have deprived the country of due revenue

Price Control For the sake of public interest in difficult economic times, countries often resort to
price control. Countries use price control in various ways to improve their economies by setting an
official price on essential products such as drugs, sugar, cereals, etc

Labour Restrictions In many countries, labour unions are very strong and have great political
clout. In these countries labour restrictions are an effective form of government intervention. Using
its strength the unions may be able to talk the government into passing very restrictive laws that
support labour at heavy cost to business.
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Factors which Influence the Political
Environment

Type of government
Government stability
Government economic management
International stance of government
Change in government policy
Relationship with parent companys home government
Attitude towards foreign managers
Administrative procedures
Closeness of government to people

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Political Risk Assessment

There are normally three methods to analyse the political risk:
Grand Tour An executive or a team of executives visit the country, hold
meetings with government, officials, local businessmen etcand based on these
findings, they may come to a conclusion.

Old Hand In this approach, the advice of an outside consultant or expert is
sought. These may be seasoned educators, diplomats, businesspersons,
etcTheir decision helps the decision making process.

Delphi Technique Here a group of experts are asked to share their opinions
independently on a given problem, in a form that can be scored in order to
produce a statistical distribution or opinion. These experts are shown the
resulting distribution and given a choice to alter their original views. This process
is repeated several times. This technique is used to rate different political factors,
like the stability of the government, the role of its armed forces, political conflicts,
etc Based on the findings, the final decision is made.

Cultural Environment
Doing business across national boundaries requires interaction with
people nurtured in different cultural environments. Culture normally
has the following characteristics:

People over time; transmit the culture of their group from
generation to generation

One part of the culture is deeply connected with another part,
such as religion with marriage, business with social status, etc

The tenets of culture are accepted by most members of the
group.

Culture does not stand still, but changes slowly over time.

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Cultural Environment
When we talk about culture, there are certain factors to be considered:

Material Life Refers to economics, that is, what people do to derive their livelihood. The tools,
knowledge, techniques, methods and processes that a culture utilizes to produce goods and
services as well as their distribution and consumption, all are a part of material life. Material life
reflects the standard of living and degree of technological advancement.

Social Interactions Social interactions establish the roles that people play in a society and their
authority / responsibility patterns. These roles and patterns are supported by societys institutional
framework, which includes education, marriage, etc

Language

Aesthetics Aesthetics include the art, drama, music, architecture, etcpertaining to a society

Religion and Faith Religion influences a cultures outlook on life, its meaning and concept

Ethics The concept of what is right and wrong is based on culture

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Cross-Cultural Analysis of Consumer
Behaviour

Determine the relevant motivations in the culture
Determine characteristic behavior patterns
Determine what broad cultural values are relevant to the product
Determine characteristic forms of decision making
Evaluate promotion methods appropriate to the culture
Determine appropriate institutions for the product in the minds of
customers
Adapt to the cultural changes from time to time

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Impact of Culture on Marketing Decisions
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Customers
Culture

Lifestyle
Behaviour
patterns
Actions in the
market place
Impact on firms
marketing
decisions