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Economic Environment

Economic Environment

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Published by Bids_2010
Economic Environment
Economic Environment

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Published by: Bids_2010 on Mar 30, 2010
Copyright:Attribution Non-commercial


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Chapter 2: The Economic Environment
Chapter ObjectivesStructure Of The Chapter OverviewThe global economyChapter SummaryKey TermsReview QuestionsReview Question AnswersReferencesMuch was said in the first chapter about the necessity to take into account the global"environmental" factors. These factors are those so called "uncontrollables", unlike the"controllable" factors of price, promotion, place and product. They include market tastes,economic, socio cultural, legal, technological, competitive and political factors to name but afew. Failure to account for these factors can lead to dire consequences. As can be seen later,the failure by Tanzania to take account of the market changes and demand shift topolypopylenes from sisal, led to a demise in that country's sisal industry.
Chapter Objectives
The objectives of this chapter are:
To describe and demonstrate the importance of the "economic" environment factor in planningand carrying out global marketing
To show the importance of the "economic" factor in global marketing
To describe and give an understanding of the major world regional economic blocs withparticular emphasis on developing countries
Structure Of The Chapter 
The chapter starts off with a review of the global economy, the composition of world trade andthe World Trade Institutions. Regionalism is a major phenomenon of the late 80s and early 90sand so the chapter describes in detail a number of major regional economic blocs. Veryimportant in any discussion on economic factors is the size of market, and more specifically, themarket ability to purchase, which depends on levels of income. The chapter finishes by lookingat the nature of economic activity including the stages of market development, urbanisation andinfrastructure as important precursors to the degree of economic activity.
Note that a comprehensive case study covering the "environmental" aspects of global marketingoccurs at the end of chapter four.
In the past fifty years the global economy has changed rapidly. Particularly marked has beenthe development of world economic integration and standardised products. Coca Cola, Nissanand Marlboro cigarettes are examples of products which serve nearly every market. Generallythere have been four major changes:
capital movements rather than trade have become the driving force of the global economy
production has become "uncoupled" from employment
primary products have become "uncoupled" from the industrial economy and,
the world economy is in control - individual nations are not, despite the large world economicshare of the USA and Japan.Taking each of these changes in turn, world trade is about some US$ 3 trillion, however, capitalmovements are much higher. The London Eurodollar market is worth about US$ 75 trillion per annum and foreign exchange transactions are US$ 35 trillion per annum.Another change is the decoupling of employment from production. Employment is in declinewhilst manufacturing output is growing or remaining static at 20-25% of GNP. Sectors such asagriculture, are achieving higher productivity through mechanisation but this is at the expense of employment.Still another change is the decoupling of the primary product market from the industrialeconomy. Many commodity prices have collapsed, for example tea, yet industrial economieshave been relatively affected. Unfortunately the prime producers have been dramaticallyaffected.Finally, the most significant change is the change of focus from domestic to the world economyas the chief economic unit. This has been grasped by Japan and Germany, but not really by theUSA, or Africa. These factors have repercussions on exporting by developing countries. Firstlywith developing countries' emphasis on the export of primary products, they are at the mercy of world supply and demand movements, with the resultant fluctuations in prices. Depressed worldmarket prices can have a deleterious effect on developing economies. Secondly the rapidglobalisation and focus away from domestic economies has created global competition and inturn, this has pushed up quality. Generally speaking, unless developing countries can break intonon-comittally based products they are being further left behind in the global economic stakes.However positively, whilst developed worlds concentrate on industrial and service products itleaves opportunities for developing countries to export more food based products.
The global economy
The development of the global economy can be traced back many hundreds of years whentraders from the east and west came together to exchange goods. However, the growth of themodern global economy is marked by a number of features as follows:
The legacy of mercantilism 1500-1750
The prevalent wisdom was one of nationalism, that is, that one nation prospered at the expenseof another. Nations like the UK, Netherlands and later France and Germany, with powerfulnavies which ruled the waves in the West, and the traders of the East, dominated that area.Over time, nationalism gave way to bullionism, where gold and silver, rather than other rawmaterials, became the basis of wealth. Still later, domination took another form, where countrieswere believed to be powerful if they had a favourable balance of trade - an excess of exportsover imports. Mercantilism died with the development of the United Nations (UN) and theGeneral Agreement on Tariffs and Trade (GATT), along with Adam Smith's tome on the "Wealthof Nations" which advocated market forces as the principal driving force to development andwealth.
World trade
Economic progress is linked to world trade and those who preach trade restrictions are denyingthis fact. Countries like the old communist bloc (Russia, East Germany, etc.) have notdeveloped as fast as those with more outward orientation. The same can be said of Africannations, where the inability to industrialise and export in volume has locked them into, generally,primary product producers. Economic Structural Adjustment Programmes (ESAP) are supposedto remedy this situation by giveng "command economies" a market oriented focus.Another argument concerns whether marketing has relevance to the process of economicdevelopment. Less developed countries (LDCs) have traditionally focused on production anddomestic income generation. Also, marketing addresses itself to needs and wants and it couldbe argued that where LDCs' productive capabilities are far less than unsatisfied needs andwants, then marketing is superfluous. However, adopting "marketing" could lead to the moreefficient and effective use of productive and marketing resources and it may be able to focus oncurrent needs and find better solutions. For example, techniques developed in the West for optimising transport resources could well be transferred to effect. Similarly, adopting newmethods of marketing may give better results. A good example is the Cold Storage Company of Zimbabwe (CSC). By changing from the current system of marketing cattle (the CSC takes incattle, at fixed prices and slaughters) to an auction system by description, all actors in thesystem could benefit.Decisions in product, price, communications and merchandising can stimulate economicdevelopment. Changing from fixed price systems to market based pricing could lead to thefaster achievement of development objectives (for example "higher incomes"). In currentdrought conditions in Africa, governments could well benefit from advertising other forms of nutritious food, for example, fish, rather than let the populace be left uninformed and disgruntledabout the lack of maize.
Composition of world trade
Agriculture, minerals, fuels and manufactured goods figure most in world trade. However shiftsare occurring (see table 2.1)

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