The Global Economic

Environment
Chapter 2

Global Marketing
 Changes in the World Economy

• Emergence of global markets

• Integration of world economy
• Increased volume of capital movements
• End of the Cold War
• Diminishing importance of national
boundaries due to technological
advancements

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 Economic Systems
• Market capitalism
• Centrally planned socialism
• Centrally planned capitalism
• Market socialism

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 Figure 2-1: Economic Systems
Resource Allocation
Market Command

Private Centrally
Market Planned
Capitalism Capitalism
Resource
Ownership

Centrally
Market Planned
State Socialism Socialism

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 Market Capitalism
• Economic system in which individuals and
firms allocate resources:
– Production resources are privately owned
– Consumers decide what goods are desired and
firms determine what and how much to produce
– Role of state is to promote competition and
protect consumers

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 Centrally Planned Socialism
• Opposite of market capitalism
• State holds broad powers to serve the public
interest; decides what goods and services are
produced and in what quantities
• Consumers can spend on what is available
• Government owns entire industries
• Demand typically exceeds supply
• Little reliance on product differentiation,
advertising, pricing strategy

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 Centrally Planned Capitalism
• Economic system in which command
resource allocation is used extensively in
an environment of private resource
ownership
• Examples:
– Sweden
– Japan

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 Market Socialism

• Economic system in which market

allocation policies are permitted within an
overall environment of state ownership
• Examples:
– China
– India

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 Degrees of Economic Freedom
Table 2-1

• Rankings of economic freedom among countries

– Ranges from “free” to “repressed”
• Variables considered include such things as:
– Trade policy
– Taxation policy
– Banking policy
– Wage and price controls
– Property rights

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 Degrees of Economic Freedom
Selections from Table 2-1

• Free • Repressed
– Hong Kong – Bosnia
– Singapore – Vietnam
– Ireland – Laos
– New Zealand – Iran
– United States – Cuba
– United Kingdom – Iraq
– Netherlands – Libya
– Australia – North Korea
– Switzerland – Congo

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 Stages of Market Development
• High income countries
• Upper-middle income countries
• Lower-middle income countries
• Low income countries

• Categories developed by The World Bank

• Stages based on GNP
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 BEMs: Big Emerging Markets
• China • Mexico
• India • Argentina
• Indonesia • South Africa
• South Korea • Poland
• Brazil • Turkey

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 Low Income Countries
• GNP per capita of $785 or less
• Characteristics
– Limited industrialization
– High percentage of population involved in farming
– High birth rates
– Low literacy rates
– Heavy reliance on foreign aid
– Political instability and unrest
• Of these, only China and India are BEMs

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 Lower Middle Income Countries
• GNP per capita between $786 and $3,125
• Sometimes called less-developed countries (LDCs)
• Characteristics
– Early stages of industrialization
– Cheap labor markets
– Factories supply items such as clothing, tires, building
materials, and packaged foods
• 3 BEMs: Poland, Turkey, Indonesia

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 Upper Middle Income Countries
• GNP per capita between $3,126 to $9,655
• Characteristics
– Rapidly industrializing
– Rising wages
– High rates of literacy and advanced education
– Lower wage costs than advanced countries
• Sometimes called newly industrializing economies
(NIEs)
• 3 BEMs: Argentina, Brazil, Mexico, South Africa

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 High Income Countries
• GNP per capita above $9,656
• Sometimes referred to as post-industrial
countries
• Characteristics
– Importance of service sector, information processing
and exchange, and intellectual technology
– Knowledge as key strategic resource
– Orientation toward the future

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 G-7 Countries
• Leaders from these high income countries work to
establish prosperity and ensure monetary stability
– United States
– Japan
– Germany
– France
– Britain
– Canada
– Italy

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 OECD: Organization for Economic
Cooperation and Development

• 29 nations each with market-allocation

economic systems
• Mission: to enable its members to achieve
the highest sustainable economic growth
and improve the economic and social well-
being of their populations
• www.oecd.org
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 The Triad
• Dominant economic centers of the world
– Japan
– Western Europe
– United States
• Expanded Triad
– Pacific Region
– North America
– European Union

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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 trade in
merchandise and services, private gifts, and public
aid between countries
• trade deficit
• trade surplus
– Capital account – record of all long-term direct
investment, portfolio investment, and capital flows

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 Leading Exporters and Importers
Table 2-6

• Exporters • Importers
– United States – United States
– Germany – Germany
– Japan – United Kingdom
– China – France
– France – Japan
– United Kingdom – Netherlands
– Canada – Canada
– Italy – Italy

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