International Marketing

COURSE 2
Global Marketing Environment
 TOPICS
 The World Economy – New Realities
 Economic Systems
 Stages of Market Development
 International Trade Framework
 International Marketing Environment
The Natural Environment
 The Demographic Environment
 The Technological Environment
 The Political/Legal Environment
 The Cultural Environment
 The Transnational Environment
The World Economy – New Realities

Capital movements have replaced trade as the

driving force of the world economy

Production has become “uncoupled” from

employment

The emergence of the world economy as the dominant

economic unit

The growth of e-commerce diminishes the importance of

national barriers and forces -companies reevaluate their
business models.
Which are the economic
systems?
Economic Systems
• individuals and firms allocated resources and production
Market capitalism resources are privately owned

• State planners make “top-down” decisions about

Centrally planned what goods/services are produced and in what quantities
socialism

• command resource allocation is utilized extensively in

Centrally planned an overall environment of private resource ownership
capitalism

• market-allocation policies are permitted within an

Market socialism overall environment of state ownership
Stages of Market Development

High-
Upper- income
Lower- middle GNI
middle income 12,235
Low
income income 
GNI GNI12,23
GNI 1,005 5
d 3955
 Stages of Market Development
 Low-Income Countries
 Limited industrialization and a high percentage of the population engaged in
agriculture and subsistence farming
 High birth rates, short life expectancy
 Low literacy rates
 Heavy reliance on foreign aid
 Political instability and unrest
 Concentration in Africa south of the Sahara

About 13 percent of the world’s

population is included in this
economic category
 Stages of Market Development
 Lower-Middle-Income Countries
 Consumer markets in these countries are expanding rapidly
 Mature, standardized, labor-intensive light industry sectors
 Ex: India, Thailand, Indonesia

 Upper-Middle-Income Countries
 the percentage of the population engaged in agriculture drops sharply
 high literacy rates, strong education systems
 wages are rising, but they are still significantly lower than in the advanced
countries
 Ex: China, Brazil, India, South Africa
 Stages of Market Development
 High-Income Countries
 The countries in this category reached their present income level through
a process of sustained economic growth
 The service sector accounts for more than half of national output
 the processing and exchange of information become increasingly
important
 Product and market opportunities in a postindustrial society are heavily
dependent upon new products and innovations

Example: the United States, Japan, Germany,

France, Britain, Canada,
and Italy
 International Trade Framework

 After 1945, the world was sharply split ideologically

into West and East  major implications for trade
relations
 A General Agreement on Tariffs and Trade (GATT)
was initiated in 1947, with the purpose of reducing tariffs
among countries
 was intended to be a multilateral, global initiative
 succeeded in liberalizing world merchandise trade
 International Trade Framework

 The Soviet Union, as he leader of the Eastern bloc, developed the

Council for Mutual Economic Assistance (CMEA or
COMECON)
 focused on developing strong linkages among the members of the
Soviet bloc and discouraged relations with the West (1949-1991)
 International Trade Framework

 TheWorld Trade Organization (WTO) – GATT’s

successor, was established in 1995
 is a forum for trade related negotiations among its
members
 Trade ministers representing the WTO member nations
meet annually to work on improving world trade
International Marketing Approach – conditions for entering a market

The economic conditions should be favourable

The cultural diversity should not provide a barrier to

business

The government regulations should encourage companies

The geographic should assist in intercountry trade

 Why should we take the environmental factors
into account?
International Marketing Environment
 Reasons for taking the marketing environmental factors into account.

reduce the risk of

failure

isolate the most important

environmental variables

aid decision-making in
international/global strategy
planning;

enable potential global businesses to

assess the risks of conducting business
between and within different countries
 Global Environmental Analysis
 A global environmental analysis can be conducted in a
number of ways. These include:
 SLEPT (Social, Legal, Economic, Political, and
Technological factors) analysis
PEST (Political, Economic, Socio-cultural, and
Technological factors) analysis
STEEPLE (Social, Technological, Economic,
Ecological, Political, Legal and Ethical) analysis
Global Environmental Analysis
The Economic Environment

The world economy has changed profoundly since World War II.

The most fundamental change is the emergence of global

markets

The integration of the world economy has increased

significantly.

During the past two decades the world economic

environment has became increasingly dynamic.
 The Natural Environment
 Altitude, humidity, and temperature extremes are climatic features
that affect the uses and functions of products and equipment.
 Products that perform well in temperate zones may deteriorate rapidly or require
special cooling or lubrication to function adequately in tropical zones.
 Within even a single national market, climate can be sufficiently diverse to
require major adjustments. In Ghana, a product adaptable to the entire market
must operate effectively in extreme desert heat and low humidity and in tropical
rainforests with consistently high humidity
 Mountains, oceans, seas, jungles, and other geographical features can pose
serious impediments to economic growth and trade.
The Natural Environment
EXAMPLES:
1. Manufacturers have found that construction equipment used in the United
States requires extensive modifications to cope with the intense heat and dust
of the Sahara Desert.

2. A Taiwanese company sent a shipment of drinking glasses to a buyer in the

Middle East. The glasses were packed in wooden crates with hay used as
dunnage to prevent breakage. The glasses arrived in shards, because when the
crates moved to the warmer, less humid climate of the Middle East, the
moisture content of the hay dropped significantly and it offered no protection.
The Demographic Environment

Current population

Rural/urban Determine the demand for

population shifts various category of goods

Age levels

Population control
The Demographic Environment

 Changes in the composition and distribution of population

among the world’s countries will affect future demand
 The total world population is 7.7 billion in 2018 and is
expected to close in on 8 billion by 2025.
 The number of people in a particular market
 provides one of the most basic indicators of market size
 is in itself indicative of the potential demand for certain items
that have universal appeal and are generally affordable.
The Demographic Environment
 It is worthwhile to analyze population projections in the areas
of interest and focus on their possible implications.
 Northern Europe will show nearly zero population growth for the next
30 years, whereas the population of Africa will triple.
 A population explosion will take place in developing countries.
 The 25 to 45 age group members, whose numbers are increasing, are
among the most affluent consumers of all, having formed family units
and started to consume household goods in large quantities
 The Political/Legal Environment

Political risk = the risk of loss when investing in a given country caused
by changes in a country’s political structure or policies, such as tax laws,
tariffs, expropriation of assets, or restriction in repatriation of profits.

Three major types of political risk can be encountered:

ownership risk operating risk transfer risk

The Political/Legal Environment

Expropriation =the seizure of foreign assets by

Ownership a government with payment of compensation to
risk the owners

Confiscation =a transfer of ownership from the

foreign firm to the host country, without any
compensation

Domestication = the government demands

partial transfer of ownership and management
responsibility and imposes regulations to ensure
that a large share of the product is locally
produced and a larger share of the profit is
retained in the country
The Political/Legal Environment

Operating interference with the ongoing

risk operations of a firm

is mainly encountered when

Transfer risk attempts are made to shift funds
between countries

A major political risk in

many countries involves
conflict and violent
change.
The Political/Legal Environment – the law systems
• inspiration from the Roman law heritage
Civil law • is the most widespread system of law in the world
systems

• a legal system founded on judge-made laws

Common law
• laws are based on custom, culture, habit, and previous
systems
judicial decisions throughout the world

• traditional common rule or practice that has become an

Customary law intrinsic part of the accepted and expected conduct, treated
systems as a legal requirement

Muslim law • an autonomous legal system which is of a religious nature

systems and predominantly based on the Quran
The Cultural Environment
Culture = the sum of the values, rituals, symbols, beliefs, and
thought processes that are learned and shared by a group of
people, then transmitted from generation to generation.

Culture affects every part of our lives, every

day, from birth to death, and everything in
between

It affects how we spend money and how we

consume in general
 The Cultural Environment
Causal factors and social processes that determine and form cultures and
cultural differences:

Humans make adaptations to changing environments through

innovation

Individuals learn culture from social institutions through

socialization (growing up) and acculturation (adjusting to a
new culture).

Individuals also absorb culture through role modeling, or

imitation of their peers

People make decisions about consumption and production through

application of their cultural-based knowledge
 The Technological Environment
 Different levels of technological development and information technology
between markets can affect the degree of export marketing strategy adaptation

Advanced technology in transportation can facilitate

the distribution of products

It helps companies to better communicate and control their

distribution channels.

Information technology together with technological skills can

create new opportunities for companies to communicate with
their target customers
The Transnational Environment

The World Trade Organization (WTO) has its origins in the GATT,
to which it became the successor organization in January of 1995.
 The WTO is based on agreements signed by the majority of the world’s
trading nations – 164 members in 2019
 oversees global trade rules among nations.
 has fueled globalization with both positive and negative effects.
 The main focus of the WTO is to provide open lines of communication
concerning trade among its members.
The Transnational Environment

The International Monetary Fund (IMF) conceived in

1944 at Bretton Woods in New Hampshire, was designed to
provide stability for the international monetary framework.
 It obtained funding from its members, who subscribed to a quota based on
expected trade patterns and paid 25 percent of the quota in gold or dollars
and the rest in their local currencies.
 These funds were to be used to provide countries with protection against
temporary fluctuations in the value of their currency
The Transnational Environment
World Bank
 189 members

 It was formed in 1944 to aid countries suffering from the destruction of

war. After completing this process most successfully, it has since taken on
the task of aiding world development.

 The World Bank Group is one of the world’s largest sources of funding
and knowledge for developing countries

  World Bank Group is a unique global partnership: five institutions

working for sustainable solutions that reduce poverty and build shared
prosperity in developing countries.
The Transnational Environment

Regional Institutions
The European Union (EU) now represents an important market size internally and
market power externally.
Similar market agreements have been formed by other groups of nations.
 The North American Free Trade Agreement (NAFTA), the
MERCOSUR in Latin America, and the Gulf Cooperation Council (GCC).

They focus on issues such as forming a customs

union, a common market, an economic union, or a
political union.
The Transnational Environment- Preferential Trade Agreements

A preferential trade agreement (PTA) = a mechanism that confers

special treatment on select trading partners
 By favoring certain countries such agreements frequently discriminate
against others
 It is customary for countries to notify the WTO when they enter into
preferential trade agreements.
The Transnational Environment- Preferential Trade Agreements

1. FREE TRADE AREA

 is formed when two or more countries agree to eliminate tariffs and other
barriers that restrict trade
 the European Economic Area
 a free trade area that includes the 27-nation EU plus Norway,
Liechtenstein, and Iceland;
 the Group of Three (G-3)
 an FTA encompassing Colombia, Mexico, and Venezuela
The Transnational Environment- Preferential Trade Agreements

2. CUSTOMS UNION
A customs union represents the logical evolution of a free trade area.
 members of a customs union agree to the establishment of common
external tariffs (CETs)
 Andean Community, the Central American Integration System (SICA)
and CARICOM.
The Transnational Environment- Preferential Trade Agreements

3. COMMON MARKET
A common market is the next level of economic integration
 In addition to the removal of internal barriers to trade and the
establishment of common external tariffs, the common market allows
for free movement of factors of production, including labor and capital
 MERCOSUR - Brazilia, Argentina, Paraguay, Uruguay
The Transnational Environment- Preferential Trade Agreements

4. ECONOMIC UNION
An economic union builds upon the elimination of the internal tariff
barriers, the establishment of common external barriers, and the free
flow of factors
 An economic union is a common marketplace not only for
goods but also for services and capital
 EUROPEAN UNION
THANK YOU!