Chapter - 2

Global Marketing
Environment
An Overview of the World
Economy
Most fundamental changes:
The emergence of global market
Responding to new opportunities
Global competitors replaces local ones
Three directions in economic reforms:
Liberalization
Privatization
Globalization
Some remarkable changes
Capital movements

Production Vs employment

The macro economics of individual countries no longer control economic

outcomes.
The growth of commerce via the Internet diminishes the importance of
national barriers.
Economic Systems
Market allocation
Promote competition and ensure consumer protection
Shifting focus from manufacturing to making rules and
regulations
Promoting private-public partnerships and competition
Looking after the interest of consumers

Command allocation
To serve the public interest
Deciding which product to make and how to make them
Distribution is handled by the government to cut out
exploitation by intermediaries.
Mixed system
All market systems have a command sector, and all command
systems have a market sector; in other words, they are mixed.
Stages of Market Development
Low-income countries (less than $786 per capita, 37% world population, 3% of world
GNP)
Limited industrialization and a high percentage of the population engaged in agriculture
and subsistence farming
High birthrates
Low literacy rates
Heavy reliance on foreign aid
Political instability and unrest
Concentration in Africa, south of the Sahara
Lower-middle-income countries
(more than $786 and less than $3125 per capita, 39% world population, 11% of
world GNP)
Upper-middle-income countries
(between $3125 and $9655 per capita, 7% world population 7% of world GNP)
High-income countries
(more than $ 9655 per capita, 16% world population, 82% of world GNP)
Basket cases
A basket case is a country with economic, social, and political problems that are so serious
they make the country unattractive for investment. These are low income, no-growth
countries such as Ethiopia and Mozambique.
 Stages of Economic Development
LDCs
Industrializing countries
Advanced countries

Income Group 2000 % of 2000 Stages of

by Per Capita GNP per World Population Economic
GNP Capita GNP (Million) Development
($)
High-Income 24259 81 981 Advanced,
Countries Industrialized,
post
industrialized
Upper-Middle 4503 7 451 Industrialized
Income
Countries
Lower-Middle- 1302 10 2418 Less developed
Income (LDC)
Countries
Low-Income 356 3 2284 Pre-
Players in the Worlds Economy
- G7
The G7, or G-7, is a group consisting of the finance ministers of seven industrialized
nations: the U.S., U.K., France, Germany, Italy, Canada and Japan. They are seven of
the eight (China excluded) wealthiest nations on Earth, not by GDP but by global
net wealth. The G7 represents more than the 66% of net global wealth ($223
trillion), according to Credit Suisse Global Wealth Report September 2012. The last
meeting of the G7 took place in May 2013 in Aylesbury in the United Kingdom.Other
meetings of the G7 are already planned.
- NICS
The term newly industrialized country ("NIC") is an economic classification used by
economists to represent economies that fall somewhere between a developed
country and a developing country. Countries falling under this categorization are
characterized by rapid export-driven economic growth and a secular migration of
workers from rural to urban areas.
Some examples of newly industrialized countries include China, India, and Brazil,
although definitions of so-called NICs vary between economists. The one thing most
people can agree on is that NICs tend to be attractive investment destinations given
their strong economic growth rates, which makes the term very important for
international investors.
- LDCS
World GNP Top 10-1995
In Billions
World GNP Top 10-2020
In Billions
 Merchandise Exports and Imports
(1999)
Percentage of World Total Exports
Imports
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
U.S. Germany Japan France U.K. Italy Canada
-2%

Country
Source: International Monetary Fund, International
Financial Statistics, Washington D. C., December 1999.
U.S. Direct Investments Abroad, 1998

Netherlands; 8%
Canada; 11%
Host-Country
Bermuda; 4%
Shares
France; 4%
Germany; 4%
Japan; 4%

Brazil; 4% United Kingdom; 18%

Switzerland; 4%

Australia; 3%

Panama; 3%

Other; 33%
Foreign Direct Investments in the U.S., 1998

Parent-Country
Japan; 16% Shares
United Kingdom; 19%
Netherlands; 12%

Germany; 12% Other; 18%

Canada; 9%
France; 8% Switzerland; 7%
Marketing and Economic
Development
The major problem of industrialized countries is.
Directing societys resources into ever-changing output or production
to satisfy a dynamic marketplace.
The major problem of less developed countries is.
Allocation of scarce resources
Focus is on production and how to increase output
In both high and low income countries the focus is on
Customer needs and wants
Distribution- Less developed countries in which labor is redundant and
cheap and capital is scarce, the availability of this distribution function
represents a useful, rational application of societys resources.
Substituting labor for capital and vice-versa
Economic risk
Radical political change
Stagflation to depression
Consumers buy fewer, less expensive but more functional products.
Trade Pattern
Merchandize trade
Service trade
Travel and entertainment; Education; Business
services; Royalties and license fees.
Copyrights, Intellectual property and patent
law
Balance Of Payment
A record of all of the economic transaction between
residents of a country and the rest of the world.
Current account
A record of all of the recurring trade in merchandize and service,

private gifts, and public aid transactions between countries.

Capital account
A record of all long-term direct investment, portfolio investment,
and other short and long-term capital flows.
A country accumulates reserves when the net of its
current and capital account transactions shows a surplus;
it gives up reserves when the net shows a deficit. The
important fact to recognize about the overall balance of
payments is that it is always in balance. Imbalances
occur in subsets of the overall balance.
Protectionism
International business must face the reality that this is a world of
tariffs, quotas, and non-tariffs barriers designed to protect a
countrys markets from intrusion by foreign companies. Although
the World Trade Organization has been effective in reducing tariffs,
countries still resort (alternative) to measures of protectionism.
Nations utilize legal barriers, exchange barriers, and psychological
barriers to restrain entry of unwanted goods.
Does Protectionism Help?
A recent study on 21 protected industries showed that while jobs are
protected, consumers pay much higher prices because of protectionism:
U.S. consumers pay about $70 billion per year in higher prices because of tariffs
and other protective restrictions.
At the same time, the average cost to consumers for saving one job in these

protected industries was $170,000 per year.

Protectionism is politically popular, particularly during times of declining
wages, and/or high employment, but it rarely leads to renewed growth
in a declining industry.
Protection Logic and Illogic
Arguments for protectionism:
Protection of infant industry
Protection of the home market
Need to keep money at home
Encouragement of capital accumulation
Maintenance of the standard of living and real wages
Conservation of natural resources
Industrialization of a low-wage nation
Maintenance of employment and reduction of unemployment
National defense
Increase of business size
Retaliation and bargaining

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Trade Barriers
Tariffs
Quotas and Import Licenses
Voluntary Export Restraints (VER)
Boycotts and embargoes
Monetary barriers
Blocked currency
Differential exchange
Government approval

Standards
Antidumping penalties

Roy Philip 17
Trade Barriers
Tariffs are taxes imposed by a government on goods entering its
borders. Tariffs may be as a revenue-generating tax or to discourage
the importation of goods, or for both reasons.

Inflationary pressures, special interests privileges,

Increase government control and political considerations in
economic matters, and the number of tariffs

Balance-of-payment positions, supply and demand

Weaken
patterns, and international relations by starting trade
wars

Manufacturers supply sources, choices available to

Restrict
consumers, and competition

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Trade Barriers
Quotas and Import Licenses
Quota is a specific unit or dollar limit applied to a particular type of good (increases
price of good)
Import licenses limits quantities on a case-by-case basis
Japan and foreign rice; Banana wars between the United States and the EU

Voluntary Export Restraints (VER)

Often used in the 1980s is an agreement between the importing country and the
exporting country for a restriction on the volume of exports. Common in textiles,
clothing, steel, agriculture and automobiles.
Japans VER on U.S. automobiles
(A voluntary export restraint (VER) or voluntary export restriction
is a government imposed limit on the quantity of goods that can be
exported out of another country during a specified period of time. Typically
VERs arise when the import-competing industries seek protection from a
surge of imports from particular exporting countries. VERs are then offered
by the exporter to appease the importing country and to deter the other
party from imposing even more explicit (and less flexible) trade barriers.)

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Degrees Of Economic Co-operation
Free Trade Area
Customs Union
Common Market
Economic Union
Free Trade Area
Two or more countries agree to abolish tariffs and
other barriers to trade amongst themselves
Countries continue independent trade policies
with countries outside agreement
Rules of origin requirements restrict
transshipment of goods from the country with the
lowest tariff to another
North AmericaNAFTA
Canada, United States, Mexico
NAFTA established a free trade area in 1994
All three nations pledge to promote economic growth through tariff
reductions and expanded trade and investment
No common external tariffs
Restrictions on labor and other movements remain
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Customs Union
Evolution of Free Trade Area
Includes the elimination of internal
barriers to trade (as in FTA)
AND establishes common external
barriers to trade
Examples: The EU and Turkey, the
Andean Community, Mercosur,
CARICOM, Central American Integration
System (SICA)

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Common Market
Includes the elimination of internal barriers
to trade (as in free trade area)
AND establishes common external barriers
to trade (as in customs union)
AND allows for the free movement of
factors of production, such as labor, capital,
and information

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Economic Union
Includes the elimination of internal barriers to trade (as in free
trade area)
AND establishes common external barriers to trade (as in
customs union)
AND allows for the free movement of factors of production,
such as labor, capital, and information (as in common market)
AND coordinates and harmonizes economic and social policy
within the union
Full evolution of economic union
creation of unified central bank
use of single currency
common policies on issues such as agriculture, social policy,
transport, competition, mergers, taxation
requires extensive political unity
would lead to a central government in time

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The General Agreement on Tariffs
and Trade (GATT)
Shortly after World War II, the U.S. and 22 other countries
signed GATT (1947) which paved the way for the first effective
worldwide tariff agreement
Basic elements of the GATT
Trade shall be conducted on a nondiscriminatory basis
Protection shall be afforded domestic industries through customs
tariffs, not through such commercial measures as import quotas
Consultation shall be the primary method used to solve global
trade problems
Eliminating international trade barriers Uruguay Round
The General Agreement on Trade in Services (GATS)
Trade-Related Investment Measures (TRIMs)
Trade-Related aspects of Intellectual Property Rights (TRIPs)

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 World Trade Organization
(WTO)
WTO which is an institution, not an agreement, was founded in
1994.
Sets many rules governing trade between its 148 members
Provides a panel exports to hear and rule on trade disputes
between members
Issues binding decisions
All member countries will have equal representation
Member countries have open their markets and to be bound by
the rules of the multilateral trading system
U.S. ratification concerns
Possible loss of sovereignty over its trade laws to WTO
Lack of veto power
Role U.S. would assume when a conflict arises over an individual
states laws that might be challenged by a WTO member
China became member of the WTO (2001); Vietnam (2007)

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Skirting the spirit of GATT and WTO
Loopholes
China reduced tariffs while at the same time increased
number and scope of technical standards and
inspection requirements
Imposing antidumping duties
Negotiating bilateral trade agreements
May lead to multinational concessions
Not necessarily consistent with WTO goals and
aspirations

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International Monetary Fund (IMF)
Because of inadequate money reserves and unstable
currencies, the IMF was created to assist nations in
becoming and remaining economically viable
Objectives of the IMF
Stabilization of foreign exchange rates
Establishment of freely convertible currencies to
facilitate the expansion and balanced growth of
international trade

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The European Union (EU)
Initially began with the 1958 Treaty of
Rome
Objective is to harmonize national laws
and regulations so that goods, services,
people, and money could flow freely across
national boundaries
1991 Maastricht Treaty set stage for
transition to an economic union with a
central bank and single currency (the Euro)

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European Union
27 countries
500 million people
$15 trillion GNI
Euro currency, 1999
Harmonization of laws and regulations
Price transparency
No customs at national borders

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