Global Economic Environment

Chapter 2 & 4

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Global Environment
 The global environmental factors affect the way businesses operate
impacting the international marketing environment.

 These factors include cultural and social influences, legal issues,

demographics, political and economic conditions, as well as changes in
the natural environment and technology.

 Some major organizations involved in this level of international

marketing are the World Trade Organization (WTO), International
Monetary Fund (IMF), World Bank and the regional institutions
(NAFTA, EU).

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World Trade Organization (WTO)
The World Trade Organization (WTO) is the only global international
organization dealing with the rules of trade between nations.

Under the General agreement on tariffs and trade (GATT), there have been
twelve rounds of negotiations between member states. The round of
negotiations-known as the Uruguay Round was finally ratified in January of
1995 which is called WTO.

GATT only focused on reducing prevailing high tariffs on goods among the
member countries. According to Most-favoured nation (MFN) clause:

“Each member country of the GATT must grant every member country the
most favourable treatment it accords to any other country with respect to
imports and exports”.

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World Trade Organization (WTO)
WTO was formed in 1995, it acts as an umbrella organization that
encompasses the GATT along with three sister bodies on services,
intellectual property and investment.

 General agreement on trade in services (GATS)

 Trade-related aspects of intellectual property rights (TRIPS)
 Trade-related investment measures (TRIMS)

The WTO has 164 countries as member states reckoning for over 98% of
world trade. The Doha Round is the latest round of trade negotiations
among the WTO membership. Also, known as the Doha Development
Agenda as a fundamental objective is to improve the trading prospects of
developing countries.

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World Trade Organization (WTO)
 Broadened the scope of international trade agreements
 Responsible for overseeing the implementation and monitoring all the
multinational agreements
 Provides enhanced protection for patents, trademarks, and copyrights
 Address the issues such as international rules and speedier dispute
settlement procedure
 Collaborating with other international organizations
 Supporting developing countries in trade policy issues, through
technical assistance and training programs

https://www.wto.org/index.htm
https://www.wto.org/english/thewto_e/countries_e/bangladesh_e.htm

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International Monetary Fund (IMF)
 Developed out of the Bretton Woods agreement in 1944
 IMF was designed to provide stability for the international monetary
framework.
 Its main purpose was a commitment not to use devaluation as a weapon
of competitive trade policy.
 The funds are to be used to provide countries with protection against
temporary fluctuations in the value of their currency.
 Offers gold and constituent currencies available to members for
currency stabilization.
 It was the goal originally to provide for fixed exchange rates between
countries.
https://www.imf.org/en/Home
https://www.imf.org/en/Countries/BGD

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World Bank
 Formed in 1944, it provides economic assistance for the reconstruction
of war-torn countries. It is the international bank for reconstruction and
development.
 In the 1970s and 1980s, world bank helped poor nations for building
infrastructure and loans to developing countries
 Now the world bank is focusing more on institution building and the
development of human capital.
 The World Bank Group works in every major area of development. It
provides wide array of financial products and technical assistance, and
help countries share and apply innovative knowledge and solutions to
the challenges they face.

https://www.worldbank.org/en/home
https://www.worldbank.org/en/country/bangladesh/overview

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BALANCE OF PAYMENTS
The balance of payments (BOP), also known as the balance of
international payments, is a statement of all transactions made between
entities in one country and the rest of the world over a defined period,
such as a quarter or a year.
The BOP transactions consist of imports and exports of goods, services,
and capital, as well as transfer payments, such as foreign aid and
remittances.
The BoP statement of a country indicates whether it has a trade deficit or
surplus of funds.

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Stages of Economic Development
 The World Bank assigns the world’s economies to four income groups
—low, lower-middle, upper-middle, and high-income countries.
 The classifications are updated each year on July 1 and are based on
GNI per capita in current USD of the previous year.
 Gross National Income (GNI) per capita is the total amount of money
earned by a nation's people and businesses divided by the population.
 In each country, factors such as economic growth, inflation, exchange
rates, and population growth influence GNI per capita.
 These income groups represents the economic development of the
country.
 Income groups can be useful for market segmentation and target
marketing.

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Low Income
 GNI per capita less than $1,036 (2020)

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
 These countries represent limited markets for all products.
Example : Afghanistan (500), Sudan (590), Rwanda (780), Somalia (420),
Niger (550), Togo (920), Uganda (800), Yemen (910)

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Lower-middle Income
 GNI per capita in between $1,036 - $4,045 (2020)
 Sometimes called less-developed countries (LDCs).
Characteristics:
 Early stages of industrialization
 Cheap labour markets, mostly unskilled labours
 Factories supply items such as clothing, tires, building materials, and
packaged foods
 Dependent on mostly production related activities and some service
related activities
 Industries are growing due to aids and governmental support

Bangladesh (2,030), Bhutan (2,840), India (1,920), Nepal (1,190),

Pakistan (1,270), Sri Lanka (3,720), Ukraine (3,570), Indonesia (3,870)

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Upper-middle Income
 GNI per capita in between $4,046 - $12,535 (2020)

Characteristics
 Rapid industrialization
 Rising wages
 High rates of literacy and advanced education
 Lower wage costs than advanced countries for skilled labour
 Countries in this stage of development frequently become formidable
competitors and experience rapid economic growth

China (10,550), Malaysia (10,570), Thailand (7,040), Turkey (9,050),

Russia (10,690)

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High Income
 GNI per capita more than $12,535 (2020)
 Sometimes referred to as post-industrial countries

Characteristics
 Mostly focus into service sector, information processing and exchange,
and intellectual technology
 Knowledge as key strategic resource
 Pioneer of the technological advancement
 High wage rate
 Higher living standard
 Orientation toward the future
Germany (47,520), Australia (53,680), Canada (43,540), France (39,500),
UAE (39,410), US (64,140), UK (39,830), Saudi Arabia (21,930)

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Class Work
Each group will select country. The group will analyse the followings:
1. WTO membership (date)
2. BOP position
3. What kind of product the country should be exporting?
4. What kind of product the country should be importing?

The group will analyse and justify their answer.

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 The Political, Legal, and Regulatory
Environments of Global Marketing

Chapter 5

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Marketers must:
 Attempt to comply with each nation’s laws and
regulations
 Keep up with laws and regulations that change
frequently
 Clarify ambiguous regulations

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The Political Environment

 Made up of governmental institutions, political parties,

and organizations that rulers and people use to exercise
power
 Each nation’s political culture reflects the importance of
the government and legal system.
 Issues for foreign investors include the governing party’s
view on sovereignty, political risk, taxes, equity dilution,
and expropriation.

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Political Risk

Likelihood that political forces will cause drastic changes that adversely
affect profits and other goals.

Some examples of political risk include:

 War
 Social unrest
 Politically motivated violence
 Lower level of Transparency
 Social conditions (population density and unequal wealth distribution)
 Corruption, nepotism
 Crime
 High Labour costs
 Tax discrimination

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Global Freedom Index 2021

https://en.wikipedia.org/wiki/Freedom_in_the_World
Politically Free, Political Rights and Human rights
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Legal risk
Likelihood that a trading partner will opportunistically break a contract or
expropriate property rights.

Rules or laws that regulate behaviour

 Property rights
 Private action
 Public action

International property issues are:

 Protection of intellectual property (enforcement???)
 Product safety and product liability (Competitiveness???/ Ethics???)

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 1. Taxes
Government taxation policies
 High taxation can lead to black market growth and cross-
border shopping
 Lack of transparency can adversely affect entry decision
Corporate taxation
 Sometimes companies attempt to limit tax liability by
shifting location of income

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2. Seizure of Assets
 Expropriation—governmental action to dispossess a foreign company
or investor
Compensation SHOULD be provided in a “prompt, effective, and adequate
manner”

 Creeping expropriation—limits economic activities of foreign firms

Types:
Royalties
Technical assistance fees increased
local content laws
Quotas for hiring local nationals
Price controls
Discriminatory tariff and nontariff barriers
Discriminatory laws on patents and trademarks

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Seizure of Assets
 Nationalization—a government takes control of enterprises in an
entire industry
International law considers acceptable if
Satisfies public purpose
Includes compensation

 Confiscation—action of taking or seizing someone's property with

authority
no compensation is provided

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Economic Freedom Index 2022
https://www.heritage.org/index/ranking
1.Rule of Law (property rights, government integrity, judicial effectiveness)
2. Government Size (government spending, tax burden, fiscal health)
3. Regulatory Efficiency (business freedom, labour freedom, monetary
freedom)
4. Open Markets (trade freedom, investment freedom, financial freedom)

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Protecting Intellectual Property
In the United States, registration is with the Federal Patent Office.
In Europe, applicants use the European Patent Office or register country
by country
In Bangladesh, Department of Patents, Designs & Trademarks (DPDT)
under the Ministry of Industries responsible for patents and trademarks in
Bangladesh and is located in 91, Motijheel Commercial Area.

Trade-related aspects of intellectual property rights (TRIPS)

World Intellectual Property Organization (WIPO)

It is an agency of the United Nations (UN). WIPO was created to promote
and protect intellectual property (IP) across the world by cooperating with
countries as well as international organizations.

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Bribery and Corruption
Foreign Corrupt Practices Act 1977
 Crime for a U.S. corporation to bribe an official to obtain or retain
business
 Prohibits payments to third parties that may be channelled to foreign
officials
Omnibus Trade and Competitiveness Act 1988
 Allows for “grease” payments

In Bangladesh, whoever commits the offence of bribery shall be punished

with imprisonment of either description for a term which may extend to
one year or with fine.
Prevention of Corruption Act, 1947

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CORRUPTION PERCEPTIONS INDEX 2021

https://www.transparency.org/en/cpi/2021
https://en.wikipedia.org/wiki/Corruption_Perceptions_Index
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Class Work
Each group will select country. The group will analyse the followings:

1. Global Freedom Index

2. Economic Freedom Index
3. Corruption Perception Index

As a marketer justify the selected county’s attractiveness and risk. Based on

that make your decision on whether to enter or not.

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