Transcript Chapter 2 - MBA Program Resources

Global Marketing
Management
A European Perspective
Economic Environment
Warren J. Keegan
Bodo B. Schlegelmilch
Overview
The World Economy – An Overview
Economic Systems
Stages of Market Development
Income and Purchasing Power Parity
Regionalisation of Markets
Summary
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Learning Objectives
Understanding the main differences between
economic systems found around the world
Learning ways of classifying countries by their
market development
Understanding consumption patterns in different
countries
Knowing the main regional economic co-operation
agreements
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The World Economy - Overview
World Economy has changed profoundly during the
last 50 years
Emergence of global markets
Integration of world economy
Capital movements are driving force of world economy
Production is “uncoupled” from employment
Macroeconomics of individual countries no longer
control economic outcomes
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Economic Systems
Three types of economic systems
Capitalist
Socialist
Mixed
Classification based on dominant method of resource
allocation
Market allocation
Command or central plan allocation
Mixed allocation
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Economic Systems – Market
Allocation
Relies upon consumers to allocate resources:
“Economic Democracy”
Role of state
Promote competition
Ensure customer protection
Examples of predominately market economies
Western European Countries, United States, Japan
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Economic Systems – Command
Allocation
State has broad powers to serve public interest
Decides which products to make
Decides how to make them
Elements of marketing mix are not used as strategic
variables
Examples of countries that relied upon command
allocation systems for decades
China, former USSR, India
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Economic Systems – Mixed Systems
There are in reality no pure market or command
allocation systems among the world’s economies
Variables to determine degree of economic freedom
Trade policy
Taxation policy
Government consumption
of economic output
Monetary policy
Capital flows
Foreign investment
Banking policy
Wage and price controls
Property rights
Etc.
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Economic Systems
Index of Economic Freedom (Source: Heritage Foundation)
 Free:
E.g., Hong Kong, Singapore, US, Japan, UK, Taiwan, Bahrain
 Mostly Free
E.g., Canada, Germany, Austria, Estonia, France, Sweden, Hungary
 Mostly Unfree
E.g., Turkey, Mexico, Israel, Malta, Russia, Bulgaria, Philippines
 Repressed
E.g., North Korea, Haiti, Moldova, Angola, Cuba
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Stages of Market Development
Global country markets are at different stages of
development
GNP per capita provides a useful way of grouping
countries into 5 categories
Categories are a useful basis for
Global segmentation
Target marketing
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Stages of Market Development –
High Income Countries
GNP per capita above € 7,960 (E.g., Japan, Sweden)
“Post-Industrial Countries”
Ascendancy
Of knowledge over capital as key strategic resource
Of intellectual technology over machine technology
Of scientists and professionals over engineers and
semiskilled workers
Orientation toward the future
Importance of interpersonal relationships
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Stages of Market Development –
Upper Middle Income Countries
GNP per capita between € 2,575 and € 7,960
(E.g., Malaysia)
Characteristics
Rising wages
High rates of literacy
Advanced education
Upper middle income countries
Experience rapidly, export-driven economic growth
Become formidable competitors
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Stages of Market Development –
Lower Middle Income Countries
GNP per capita between € 650 and € 2,575
(E.g., Indonesia)
Characteristics
Early stages of industrialization
Expanding consumer markets
Major competitive advantage in the production of
mature, standardized, labour-intensive products
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Stages of Market Development –
Low Income Countries
GNP per capita less than € 650
(E.g., Bangladesh)
Characteristics
Limited industrialization
High birth rates
Low literacy rates
Heavy reliance on foreign aid
Political instability
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Income and Purchasing Power (1)
Income
Single most important indicator of market potential
Purchasing Power Parities
Comparison of goods and services that can be bought with
local currency in different countries
Gross National Product (GNP)
Sum of the money values of all final goods and services
produced during a year
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Income and Purchasing Power (2)
 Top 10 Nations ranked by GNP/Capita (1997)
1.
2.
3.
4.
5.
Luxembourg
Switzerland
Japan
Norway
Denmark
6.
7.
8.
9.
10.
Singapore
Germany
Austria
United States
Belgium
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Income and Purchasing Power (3)
 Top 10 Nations ranked by GNP/Capita adjusted for
Purchasing Power (PPP)
1.
2.
3.
4.
5.
Luxembourg
United States
Switzerland
Kuwait
Hong Kong
6.
7.
8.
9.
10.
Singapore
Japan
Norway
Belgium
Canada
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The Location of Population
 About 74% of world income is concentrated in the
Triad (North America, Japan, Western Europe)
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Country
Population
(thousands)
GNP/Capita
(thousands)
China
India
United States
Indonesia
Brazil
1,231,000
965,000
267,000
199,000
164,000
613
309
23,530
246
3,046
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% World
GNP
3.2
1.3
26.7
0.8
2.1
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Marketing And Economic
Development
 Does marketing play an important role in the
economic development of a country?
 Is marketing only relevant to conditions that apply in
affluent, industrialized countries?
The marketing process of focusing an organization’s
resources on environmental opportunities is a process
of universal relevance
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Balance of Payments
 A record of all economic transactions between
residents of a country and the rest of the world
 Capital Account records
 Long-term direct investment, Portfolio investment, Other
short- and long-term capital flows
 Current Account records
 Trade in merchandise and service, Private gifts, Public aid
transactions between countries
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Regionalisation of Markets (1)
 Many different forms of economic co-operation
between countries
 Free trade areas
 Customs unions
 Common markets
 Economic unions
 World Trade Organisation (WTO)
 Acts as mediator in global trade disputes
 Ensures that trade flows are as smooth, predictable and as
free as possible
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Regionalisation of Markets (2)
 European Union (EU)
 15 European member countries
 Market of 379 million people
 North American Free Trade Agreement (NAFTA)
 United States, Canada, Mexico
 Market of 381 million people
 Association of Southeast Asian Countries (ASEAN)
 10 member countries (Brunei, Cambodia, Indonesia, Laos,
Malaysia, Myanmar, Philippines, Singapore, Thailand,
Vietnam)
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Summary
 Economic environment is major determinant of
global market potential and opportunity
 World economies can be categorized into market
allocation systems, command allocation systems, and
mixed systems
 For many products, most important indicator of
market potential is income
 There is a strong interest among nations in forming
economic co-operations
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