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International Marketing Environment

Economic environment

www.eeg.uminho.pt

Agenda
• Introduction
• Economic systems
• Stages of economic development
• Country competitiveness
• Degrees of economic cooperation
• Emerging economies

• Chapter 2 – Kotabe & Helsen

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https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/global-flows-the-ties-that-bind-in-an-interconnected-world

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• How can we analyse economic systems of current/potential

markets?

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Varying Degrees of Economic Freedom

• National economic systems vary from
• Free market /market allocation
• Controlled systems

• Classification based on dominant method of resource

allocation
• In reality, no pure market or command allocation systems
among the world’s economies

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Economic Systems
•Market allocation
• Rely upon consumers to allocate resources
• Role of state
• Promote competition
• Ensure consumer protection
•Command allocation
• State has broad powers to serve public interest
• Decides which products to make
• Decides how to make them

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• Index of Economic Freedom http://www.heritage.org/index/about

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Activity

• Go to http://www.heritage.org/index/about
• How is economic freedom measured?
• What levels of economic freedom are identified?
• What is the position of Portugal/your own country in this
ranking?

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Stages of Market Development

• Countries/markets are at different stages of development
• Income provides a useful way of grouping countries into 4
categories
• Categories are a useful basis for:
• Market segmentation
• Target marketing

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Stages of Market Development

• INCOME GROUPS–defined according to GNI per capita´(World

Bank Atlas method):
• Low
• Lower-middle
• Upper-middle
• High
• http://data.worldbank.org/about/country-and-lending-groups

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Activity
• Go to
https://datahelpdesk.worldbank.org/knowledgebase/articles
/906519-world-bank-country-and-lending-groups
• How many countries are in each development stage? Identify
five of those countries.
• In what group is Portugal?
• What is the GNI of Portugal/your own country?

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Stages of Market Development –

Low Income Countries

• Characteristics
• Limited industrialization
• High birth rates
• Low literacy rates
• Heavy reliance on foreign aid
• Inequality of income distribution
• Political instability

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Stages of Market Development –

Lower Middle Income Countries

• Characteristics
• Early stages of industrialization
• Expanding consumer markets

• Major competitive advantage in the production of mature,

standardized, labor-intensive products

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Stages of Market Development – Upper Middle

Income Countries
• Characteristics
• Rising wages
• High rates of literacy
• Advanced education
• Experience rapidly, export-driven economic
growth
• Become formidable competitors

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Stages of Market Development – High Income

Countries
• Achieved through sustained economic growth
• Post-industrial countries
• The information-society countries
• Ascendancy of knowledge over capital
• The most powerful nations in this group are the G20
and the G7

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Who wins when na iPod is sold in the US for €196,8?

• In the Chinese company that assembles the devices, only 2.6 euros
are left. 105 euros go to the North American companies responsible
for the design, transport and commercialization of the iPod.
• This standard applies to several products
• (study by the University of California and cited by European
Commissioner for Trade, Peter Mandelson)

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INCOME AND PURCHASING POWER PARITY

Comparison of goods and services that can be

bought with local currency in different countries

Ex: Big mac index

http://www.economist.com/content/big-mac-
index?fsrc=scn/fb/te/bl/ed/

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Big mac index

“The big mac index was invented by The
Economist in 1986 as a lighthearted guide to
whether currencies are at their “correct” level. It is
based on the theory of purchasing-power parity
(PPP), the notion that in the long run exchange
rates should move towards the rate that would
equalise the prices of an identical basket of goods
and services (in this case, a burger) in any two
countries”
http://www.economist.com/content/big-mac-
index?fsrc=scn/fb/te/bl/ed/

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Country Competitiveness

• Country competitiveness refers to the productiveness of a

country, which is represented by its firms’ domestic and
international productive capacity.
• The role of human skill resources has become increasingly
important as a primary determinant of industry and country
competitiveness

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Competitiveness is defined as the set of institutions, policies

and factors that determine a country’s level of productivity. The
level of productivity, in turn, sets the level of prosperity that can
be reached by an economy.
(WEF, 2014-2015, p. 4)

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Porter – Determinants of national

advantage

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Competitiveness reports/rankings
• The Global Competitiveness Report – World Economic Forum
• http://www.weforum.org/ (último 2020)
• Mais recentemente tem publicado rankings mais específicos. Ex:
https://www.weforum.org/agenda/2023/11/most-talent-competitive-countries-
2023/

• IMD - World Competitiveness ranking

• https://www.imd.org/centers/wcc/world-competitiveness-center/rankings/world-
competitiveness-ranking/2023/

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“The Report shows that competitiveness – understood as

higher productivity – is a key driver of growth and resilience
(…) At the heart of an economy’s competitiveness is its
capacity to leverage talent.”

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IMD World Competitiveness Ranking 2023 – An

overview

What is political fragmentation doing to the prosperity of nations?

• https://youtu.be/J8KC82w8-mo?list=TLGGGmLhAbtFaAkyMTExMjAyMw

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Rankings full list of results

https://www.imd.org/centers/wcc/world-competitiveness-center/rankings/world-competitiveness-ranking/2023/
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Methodology?
• How many countries?
• Indicators? What type of information?
• Overall and factor rankings?

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IMD Methodology
The World Competitiveness Yearbook ranks and analyzes the ability of
nations to create and maintain an environment in which enterprises
can compete.
It means that we assume that wealth creation takes place primarily at
enterprise level (whether private or state owned) - this field of research
is called: "competitiveness of enterprises."
However, enterprises operate in a national environment which
enhances or hinders their ability to compete domestically or
internationally - this field of research is called: "competitiveness of
nations" and is covered in our research.

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The Global Competitiveness Report – World Economic

Forum
Since 1979 the Global Competitiveness Report series has aimed to broaden the
views of policymakers, business and the public on looking beyond growth alone to
enhance economic productivity and broader resilience.

In this Special Edition, at this turbulent time for the global economy, we pause
comparative country rankings on the Global Competitiveness Index. Instead we take
a fundamental look at how economies should think about revival and transformation
as they recover and redesign their economic systems to enhance human
development and compatibility with the environment.

University of Minho | School of Economics and Management www.eeg.uminho.pt

• Key findings?
• https://www.weforum.org/reports/the-global-
competitiveness-report-2020/in-full/executive-summary-
70fef507ea
• https://www.weforum.org/reports/the-global-
competitiveness-report-2020/in-full/infographics-
14b60f7c60

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Regional Economic Arrangements

• Free Trade Areas: Formal agreement among two or more countries to
reduce or eliminate customs duties and nontariff barriers.
• Customs Union: Addition of common external tariffs to the provisions of free
trade agreements.
• Common Market: Eliminates all tariffs and other barriers, adopts a common
set of external tariffs on nonmembers, and remove all restrictions on the
flow of capital and labor among member nations.
• Monetary Union: Represents the fourth level of integration with a single
currency among politically independent countries.
• Political Union: Highest level of integration resulting in a political union

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Activity

• Globaledge – Insights by trade bloc

• https://globaledge.msu.edu/global-
insights/by/trade-bloc

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Emerging Economies

• Over the next two decades, the big emerging markets

(BEMs) will hold the greatest potential for exports
• Each of these economies has unique economic,
market, and industry characteristics, that, in turn
present opportunities and challenges for local policy
makers, businesses and the the international business
and economic community

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Example:
Chris Folayan: How I built an online platform to help retailers reach Africa’s consumers

“Today Mall for Africa is helping consumers in Nigeria, Kenya, South Africa and 12 other African
countries buy merchandise from 263 western retailers including Amazon, eBay, Macy’s and
Walmart. Each week, we ship about four to six tonnes of merchandise including apparel, school
supplies and equipment for small businesses such as hospitals, hotels, restaurants and hair
salons. We’re growing rapidly and expanding into more countries, but the process of building a
business for consumers in Africa was unlike anything I had done before and required
overcoming several challenges.”

https://www.howwemadeitinafrica.com/chris-folayan-how-i-built-an-online-platform-to-help-
retailers-reach-africas-consumers/61208/

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Example
“Sub-Saharan Africa is making its way towards a stronger and
more diversified economy, with plentiful and profitable investment
opportunities and higher living standards for the rapidly growing
population. Cities are at the helm of these impressive economic
changes. Urban centres, on the back of their economic and
administrative significance, boast disproportionately bigger shares
of the region’s middle class, consumer spending, as well as
households with digital literacy and modern lifestyles.”
Euromonitor international (WP - Doing business beyond South Africa:
Growth and opportunity in sub-saharan cities - 12 jul 2016)

University of Minho | School of Economics and Management www.eeg.uminho.pt

MARKET POTENTIAL INDEX

• http://globaledge.msu.edu/tools-and-data

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• Market Potential Index (MPI)

• The purpose of this study is to rank, with a U.S. focus, the market potential of 87 identified countries and
to provide guidance to the U.S. companies that plan to expand their markets internationally. While the
U.S. is not included in the rankings, the insights provided by the index are still applicable to companies
located in other international markets.

• This indexing study is conducted by the Michigan State University-International Business Center to help
companies compare prospect markets on several dimensions. Eight dimensions are chosen to represent
the market potential of a country on a scale of 1 to 100. The dimensions are measured using various
indicators, and are weighted in determining their contribution to the overall Market Potential Index (MPI).

University of Minho | School of Economics and Management www.eeg.uminho.pt

Activity
• https://globaledge.msu.edu/mpi
• What countries are included in this market ptential
index?
• What is the overall ranking?
• What are the dimensions considered?

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