Global Marketing Management Chapter 2 Global Economic Environment

Warren J. Keegan

Overview
The World Economy An Overview Economic Systems Stages of Market Development Stages of Economic Development Income and Purchasing Power Parity The Location of Population Marketing and Economic Development Balance of Payments Trade Patterns Summary
Chapter 2/ 2

Keegan: Global Marketing Management

Learning Objectives
Understand the main differences between economic systems found around the world Learn ways of classifying countries by their market development Understand consumption patterns in different countries Know the main regional economic co-operation agreements

Keegan: Global Marketing Management

Chapter 2/ 3

The World Economy - Overview

During the last 50 years:
Emergence of global markets Integration of world economy

Capital movements are driving force Production is uncoupled from employment Macroeconomics of individual countries no longer control economic outcomes
Keegan: Global Marketing Management Chapter 2/ 4

Economic Systems
Three types of economic systems:
Capitalist Socialist Mixed

Classification based on dominant method of resource allocation

Market allocation Command allocation Mixed system
Keegan: Global Marketing Management Chapter 2/ 5

Economic Systems Market Allocation

Relies upon consumers to allocate resources Role of state
Promote competition Ensure consumer protection

Predominately market economies:

US, Western European Countries, Japan

Keegan: Global Marketing Management

Chapter 2/ 6

Economic Systems Command Allocation

State has broad powers to serve public interest
Decides which products to make Decides how to make them

Elements of marketing mix are not used as strategic variables Countries that relied upon command allocation systems for decades: China, former USSR, India
Keegan: Global Marketing Management Chapter 2/ 7

Economic Systems Mixed Systems

In reality, no pure market or command allocation systems among the worlds economies In OECD countries, the portion taxes ranges from 32% GDP in US to 64% in Sweden

Keegan: Global Marketing Management

Chapter 2/ 8

Economic Systems
Index of Economic Freedom (Source: Heritage Foundation)
Free:
Hong Kong, Singapore, New Zealand, , Bahrain, Luxembourg, US,

Mostly Free
Canada, Chile, El Salvador, Taiwan

Mostly Unfree
Cambodia. Mexico, Slovak Rep., Slovenia, Swaziland

Repressed
North Korea, Iraq, Libya, Somalia, Cuba
Keegan: Global Marketing Management Chapter 2/ 9

Stages of Market Development

Countries/markets are at different stages of development GNP per capita provides a useful way of grouping countries into 5 categories Categories are a useful basis for:
Market segmentation Target marketing

Keegan: Global Marketing Management

Chapter 2/ 10

Country Income Segmentation

$9,656 High Income (Advanced Countries) -Triad -Others + $3,126 Upper Middle Income (NICs) + $786 < $768 Lower Middle Income (DCs) Lower Income (LDCs) Basket Cases (BCs)

Keegan: Global Marketing Management

Chapter 2/ 11

Global Income & Population 2001

Income World High Up-Mid Low-Mid Low GNP (billion) GNP/ Capita % Population % Pop. GNP (Millions) 100 80 7 10 3 6,134 983 449 2,418 2,284 100 16 7 39 37
Chapter 2/ 12

$30,251 $4,931 $24,280 $24,693 $2,111 $3,150 $810 $4,476 $1303 $355

Keegan: Global Marketing Management

Top 10 GNP
(in millions)

United States Japan Germany France United Kingdom China Italy Brazil Canada Spain

$8,259,358 4,427,104 2,127,086 1,446,515 1,359,764 1,179,345 1,168,771 850,852 602,158 544,944
Chapter 2/ 13

Keegan: Global Marketing Management

Stages of Market Development High Income Countries

GNP per capita above $9,656 Norway at $38,070, US at $20,953 Post-Industrial Countries
Importance of service sector more than 50% of GNP Ascendancy of knowledge over capital

Keegan: Global Marketing Management

Chapter 2/ 14

Stages of Market Development Upper Middle Income Countries

GNP per capita between $3,126 and $9,656 Characteristics
Rising wages High rates of literacy Advanced education Experience rapidly, export-driven economic growth Become formidable competitors
Keegan: Global Marketing Management Chapter 2/ 15

Stages of Market Development Lower Middle Income Countries

GNP per capita between $785 and $3,125 Characteristics
Early stages of industrialization Expanding consumer markets

Major competitive advantage in the production of mature, standardized, labor-intensive products

Keegan: Global Marketing Management

Chapter 2/ 16

Stages of Market Development Low Income Countries

Income per capita less than $785 Characteristics
Limited industrialization High birth rates Low literacy rates Heavy reliance on foreign aid Political instability Concentration in Africa, south of the Sahara

Keegan: Global Marketing Management

Chapter 2/ 17

Stages of Market Development Basket Cases

A country with economic, social & political problems that are so serious they make the country unattractive for investment and operations Low-income, no-growth countries (E.g.. Ethiopia) One-time growing & successful countries that have become divided by political struggles

Keegan: Global Marketing Management

Chapter 2/ 18

Stages of Economic Development

Stages of market development based on GNP per capita correspond with the stages of economic development
Low & lower-middle-income countries = less developed countries (LDCs) Upper- middle-income countries = industrializing countries High-income countries = advanced, industrialized & postindustrial
Keegan: Global Marketing Management Chapter 2/ 19

Income and Purchasing Power (1)

Income
Single most important indicator of market potential

Purchasing Power Parities

Comparison of goods & services that can be bought with local currency in different countries

Gross National Product (GNP)

Sum of the money values of all final goods & services produced during a year
Keegan: Global Marketing Management Chapter 2/ 20

Income and Purchasing Power (2)

Top 10 Nations ranked by GNP/Capita (2000) Luxembourg Norway Singapore Switzerland Kuwait Japan Denmark United States Hong Kong Austria

Keegan: Global Marketing Management

Chapter 2/ 21

Income and Purchasing Power (3)

Top 10 Nations ranked by GNP/Capita adjusted for Purchasing Power (PPP)
Luxembourg United States Singapore Norway Hong Kong Switzerland Denmark Japan Belgium Austria
Chapter 2/ 22

Keegan: Global Marketing Management

The Location of Population

Country China India United States Indonesia Brazil Population (thousands) 1,268,121 1,015,287 275,746 210,785 170,661 GNP/Capita (thousands) 930 424 29,953 1,176 5,535 % World GNP 3.9 1.4 27.3 0.7 2.8

Keegan: Global Marketing Management

Chapter 2/ 23

Marketing & Economic Development

Does marketing play an important role in the economic development of a country? Is marketing only relevant to conditions that apply in affluent, industrialized countries? The marketing process of focusing an organizations resources on environmental opportunities is a process of universal relevance
Keegan: Global Marketing Management Chapter 2/ 24

Balance of Payments
A record of all economic transactions between residents of a country & the rest of the world Capital Account records
Long-term direct investment, Portfolio investment, Other short & long-term capital flows

Current Account records

Trade in merchandise & service, Private gifts, Public aid transactions between countries
Keegan: Global Marketing Management Chapter 2/ 25

Trade Patterns (1)

World merchandise trade has grown faster than world production during the last 50 years
Top 5 exporting countries
United States Germany Japan China France
Keegan: Global Marketing Management

Top 5 importing countries

United States Germany Japan United Kingdom France
Chapter 2/ 26

Trade Patterns (2)

Services Trade
The fastest- growing sector of world trade In 1994, U.S. service exports totalled $195 Billion

Keegan: Global Marketing Management

Chapter 2/ 27

Summary
Economic environment is major determinant of global market potential & opportunity World economies can be categorized into market allocation systems, command allocation systems, & mixed systems For many products, most important indicator of market potential is income

Keegan: Global Marketing Management

Chapter 2/ 28