2) Very low and very high family incomes.
Some
CHAPTER FOUR
Group of Five. US, Britain, France, Germany, and Japan.
Group of Seven. Adding Italy and Canada
Group of Ten. Adding Sweden, the Netherlands, and
Belgium
Group of Twenty. Plus Argentina, Australia, Brazil, China,
India, Indonesia, Mexico, Russia, Saudi Arabia, South
Africa, South Korea, and Turkey
Organization for Economic Cooperation and
Development, or OECD (30 countries)
▪ Western Europe, United States, Australia,
Canada, Czech Republic, Hungary, Japan,
Mexico, New Zealand, Poland, Slovakia, South
Korea, and Turkey
Newly Industrialized Countries (NICs), which include
Singapore, Taiwan, Korea, Hong Kong, Brazil, and Mexico
>> Rapidly Industrializing Country (RIC)
11 Major oil-exporting countries:
Organization of Petroleum Exporting Countries (OPEC)
Algeria, Angola, Ecuador, Islamic Republic of Iran, Iraq,
Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United
Arab Emirates, and Venezuela.
Statistical Abstracts provide the starting point for market
investigations.
▪ The greatest population densities >> Europe--
providing the global marketer with a strategically
located center of operation and ready access to the
major markets of the world.
▪ Two largest entities in Asia—China and India—
constitute nearly 70 percent of Asia’s population.
▪ Age distribution and life expectancy correlate heavily
with the level of development of the market.
Household includes all the persons, both related and
unrelated, who occupy a housing unit.
The concept of urbanization has different meanings
depending on where one operates. The increased
urbanization of many markets has distinctly changed
consumption patterns.
--Most indicative of the market potential for most
consumer and industrial products and services.
▪ Per capita GDP is often used as a primary
indicator for evaluating purchasing power.
The international marketer can use the following
classification as a planning guide:
1) Very low family incomes. Subsistence economies
tend to be characterized by rural populations in
which consumption relies on personal output or
barter. Some urban centers may provide
markets. Example: Cameroon.
countries exhibit strongly bimodal income
distributions. The majority of the population may
live barely above the subsistence level, but there
is a strong market in urban centers and a growing
middle class. The affluent are truly affluent and
consume accordingly. Examples: India, Mexico.
3) Low, medium, and high family incomes.
Industrialization produces an emerging middle
class with increasing disposable income. The very
low and very high income classes tend to remain
for traditional reasons of social class barriers.
Example: Portugal.
4) Mostly medium family incomes. The advanced
industrial nations tend to develop institutions and
policies that reduce extremes in income
distribution, resulting in a large and comfortable
middle class able to purchase a wide array of
both domestic and imported products and
services. Example: Denmark.
Purchasing Power Parities (PPPs) show how many units of
currency are needed in one country to buy the amount
of goods and services that one unit of currency will buy in
another country.
Using a monetary measure may not be a proper and all inclusive
measure of income; For example, in developing economies
where most of the consumption is either self-produced or
bartered, reliance on financial data alone would seriously
understate the standard of living.
Moreover, the marketer will have to take into consideration
variations in market potential in individual markets. Major urban
centers in developing countries may have income levels
comparable to those in more developed markets, while rural
areas may not have incomes needed to buy imported goods.
In general, income figures are useful in the initial
screening of markets. in product-specific cases, income
may not play a major role, and startling scenarios may
emerge. Some products, such as autos and television sets
in China, are in demand regardless of their high price in
relation to wages because of their high prestige value.
Some products are in demand because of their foreign
origin.
share of income spent on necessities will provide an
indication of the market’s development level as well as
an approximation of how much money the consumer has
left for other purchases.
Engel’s laws state that as a family’s income increases, the
percentage spent on food will decrease, the percentage
spent on housing and household operations will be
roughly constant, and the amount saved or spent on
other purchases will increase.
Inflation affects the ability of both industrial customers
and consumers to buy and also introduces uncertainty
into both the marketer’s planning process and
consumers’ buying habits.
High-inflation markets, the marketer may have to make
changes in:
▪ The product (more economical without compromising
quality)
▪ Promotion (more rational), and
▪ Distribution (more customer involvement) to meet
customer needs and maintain demand.
In response to rapidly escalating prices, a government will
often invoke price controls.
Indicators such as steel consumption, cement
production, and electricity production relate to the
overall industrialization of the market and can be used
effectively by suppliers of industrial products and services.
Developed, emerging, and developing markets will
require different adjustments by marketers.
Economic success comes with a price tag.
Many countries, including the nations of Southeast Asia,
were able to achieve double-digit growth for decades
while paying scant attention to problems that are now
demanding treatment: infrastructure limits, labor
shortages, demands for greater political freedom,
environmental destruction, urban congestion, and even
the spread of drug addiction.
Share of urban population, life expectancy, number of
physicians per capita, literacy rate, percentage of
income received by the richest 5 percent of the
population, and percentage of the population with
access to electricity.
Cultural indicators: number of public libraries, registered
borrowings, book titles published, and number of daily
newspapers.
Physical Quality of Life Index (PQLI) is a composite
measure of the level of welfare in a country.
Three components: life expectancy, infant mortality, and
adult literacy rates--among the few social indicators
available to provide a comparison of progress through
time in all of the countries of the world.
The presence of multinational corporations, which by
their very nature are change agents, will accelerate
social change.
In some cases, governments restrict the freedom of
multinational corporations if their actions may affect the
environment. Ex: Restrictions in building height in Bali.
Economic integration has been one of the main
economic developments affecting world markets since
World War II.
Forms of Economic Integration in Regional Markets
Success of these blocs, from their establishment to future
expansion institutionally and geographically, will depend
on:
(1) the leadership of selected countries (i.e., every bloc
needs an “engine”);
(2) their proximity in terms of geography, culture,
administrative dimensions, and basic economic factors;
(3) their commitment to regional cooperation.
1957, European Economic Community (EEC) was formally
established by the Treaty of Rome. Based on the premise
that the mobility of goods, services, labor, and capital—
the “four freedoms”—was of paramount importance for
the economic prosperity of the region.
The EU’s Economic and Monetary Union (EMU), a single
monetary policy for the 17 euro-area member states,
combined with coordinated national fiscal policies, has
helped foster:
▪ Macroeconomic Stability
▪ Precipitated the Economic Integration Of Europe
▪ Boosted Cross-Border Trade
▪ Financial Integration
▪ Investment.
The EMU has also increased the EU’s resilience to adverse
shocks.
Progress toward the goal of free movement of goods has
been achieved largely due to the move from a
“common standards approach” to a “mutual recognition
approach.”
Under the common standards approach, EU members
were forced to negotiate the specifications for literally
thousands of products, often unsuccessfully. For example,
because of differences in tastes, agreement was never reached
on specifications for beer, sausage, or mayonnaise.
Under the mutual recognition approach, the laborious
quest for common standards is, in most cases, no longer
necessary. Instead, as long as a product meets legal
and specification requirements in one-member country, it
may be freely exported to any other, and customers
serve as the final arbiters of success.
Began in 1994 to create the world’s largest free market,
with currently more than 460 million consumers and a
total output of nearly 17.5 trillion
Opposition to NAFTA has centered on issues relating to
labor and the environment.
▪ Distinctive feature:
▪ Two side agreements that were worked out to correct
perceived abuses in labor and in the environment in
Mexico.
• Association of Southeast Asian Nations (ASEAN).
October 1991, ASEAN members announced the
formation of a customs union called the ASEAN Free
Trade Area (AFTA).
• East Asia Economic Group (EAEG)
• Asia Pacific Economic Cooperation (APEC)—
Annual forum proposed by Australia
• South Asian Association for Regional Cooperation
(SAARC)-- India, Pakistan, Bangladesh, Sri Lanka,
Nepal, Bhutan, and the Maldives.

▪ The North American Agreement on Labor

Cooperation (NAALC) was set up to hear complaints
about worker abuse. Commission on Environmental
Compliance was established to act as a public
advocate for the environment. The side agreements
have, however, had little impact, mainly because the
mechanisms they created have almost no
enforcement power.
Free trade does produce both winners and losers.
• Economic Community of West African States (ECOWAS)
--form a customs union and eventual common market.
• Common Market for Eastern and Southern Africa (COMESA)
• Economic Community of Central African States (CEEAC)
• Southern African Development Community (SADC)
• Economic Community of the Great Lakes Countries (ECGLC)
• Mano River Union (MRU)
• East African Community (EAC)
• African Union (AU)—2002 for regional cooperation

Wages and employment for unskilled workers in the
United States decreased because of Mexico’s low-cost
labor pool.
U.S. companies have been moving operations to Mexico
since the Maquiladoras plants that make goods and
parts or process food for export back to the United States.
Countries in the Arab world
• Gulf Cooperation Council (GCC) is one of the most
powerful, economically speaking, of any trade groups.
o Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and
the United Arab Emirates--90th percentile in the
world.

--a country making an effort to change and improve its

Mercado Común del Sur (MERCOSUR) 1991.
Three main objectives:
(1) establishment of a free trade zone;
(2) creation of a common external tariff system (i.e., a
customs union); and
(3) free movement of capital, labor, and services.
economy with the goal of raising its performance to that
of the world’s more advanced nations.
Developed countries benefit from the development
of human and natural resources in emerging markets
through increased international trading.

▪ Four times as big as EU.

▪ Combined market of more than 266 million people
and accounts for more than three-quarters of the
economic activity on the continent.
▪ World’s fourth-largest trading bloc

• Brazil most advanced in manufacturing and tech

• Sao Paulo is one of the world’s major industrial cities and
is home to the affiliates and subsidiaries of many foreign
corporations.
• EU second largest trading partner after the United
States.

Andean Common Market (ANCOM) founded in 1969

4 countries that straddle the Andes: Bolivia, Colombia,
Ecuador, and Peru.

Andean Trade Preference Act (ATPA) was enacted to

help four Andean countries in their fight against drug
production and trafficking by expanding their economic
alternatives.
Free Trade Area of the Americas (FTAA)

Volkswagen, 1984, General Motors.
1997, it dominated Chinese auto markets.
-- However, they are now facing competition offering
more economically priced cars. To respond, GM has
introduced the $8,000 Chevy Spark but will focus on
the higher-end market with its Cadillac line.
Critical battleground is emerging for companies in the
“good-enough” market segment, home of reliable enough
products at low-enough prices to attract the fastest-growing
segment of midlevel Chinese customers.
Kodak--nearly 8,000 photo stores across China, one of the
country’s largest retail operations. The company taps the
desire of many Chinese to run their own businesses while
helping them negotiate setting up their operations.
One Kodak campaign offered all of the necessary photo-
development equipment, training, and a store license for
99,000 yuan ($12,000). Kodak negotiated a deal with the
Bank of China and other big banks to arrange financing
for individuals lacking capital. These programs are part of
Kodak’s big bet when it bought three debt-laden state
enterprises and many of their workers for $1 billion. In
return, no other companies in the industry were allowed
into China for four years.
Appeal of recognizable brands-- common characteristic
across all emerging markets.
Consumer loyalty is ensured by adding a new quality
dimension to well-established brands.
Without credit, it is impossible for many developing-
country consumers to make major purchases. Programs in
microfinance have allowed consumers, with no property
as collateral, to borrow sums averaging $100 to make
purchases and have retail banking services available to
them.
In the product area, companies must combine
advanced technology with local insights.
Due to the economic and physical isolation of poor
communities, providing access can lead to a thriving
business.
Regional economic integration creates opportunities
and potential problems for the international
marketer. It may have an impact on a company’s
entry mode by favoring direct investment because
one of the basic rationales of integration is to
generate favorable conditions for local production and
intraregional trade.
• Envision the outcome of the change.
• Change in the competitive landscape can be
dramatic if scale opportunities can be exploited in
relatively homogeneous demand conditions.
After determining the effects of change, the international
marketer will then have to develop a strategic response
to the new environment to maintain a sustainable long-
term competitive advantage.
Structurally, authority will have to become more
centralized to execute regional programs.
International managers, as change agents, must
constantly seek ways to influence the regulatory
environment in which they have to operate.
Data on the economic environment produce a snapshot
of the past; in some cases, old data are used to make
decisions affecting operations two years in the future.
Economic data provide a baseline from which other
more market- or product-specific and even experiential
data can be collected.
The emergence of economic integration in the world
economy poses unique opportunities for and challenges
to the international marketer.
KEY TERMS
• Group of Five • Inflation
• Group of Seven • Physical Quality of Life
• Group of Ten Index
• Group of Twenty • (PQLI)
• Household • Maquiladoras
• Urbanization • Microfinance
• Purchasing Power
Parities (PPP)