Global Marketing

Topic 2

The Global Economic

Environment
World continents
World countries
Economic and Cultural analysis guide
Global Economic and Trade info

• https://data.worldbank.org/country
• https://www.imf.org/en/Countries
• https://www.weforum.org/
• http://www.oecd.org/
• https://www.wto.org/
• https://en.wikipedia.org/wiki/Economic_integration
• https://en.wikipedia.org/wiki/List_of_multilateral_free-
trade_agreements
 Government trade portals

https://www.miti.gov.my/index.php
https://www.matrade.gov.my/en/export-to-the-world
Learning Objectives
2.1 Identify and briefly explain major changes in the world economy over
the last 100 years
2.2 Compare and contrast types of economic systems that are found in
the different regions of the world
2.3 Explain the stages of economic development used by the World Bank
and identify the key emerging country markets at each stage of
development.

3.1 Explain the role of the WTO in facilitating global trade relations among
nations.
3.2 Compare and contrast the four main categories of preferential trade
agreements.
The World Economy-An Overview
• In the early 20th century economic integration was at 10%;
today it is 60%
• EU and NAFTA are very integrated
• Global competitors have displaced or absorbed local ones

Economic integration involves agreements

between countries that usually include the
elimination of trade barriers and aligning
monetary and fiscal policies, leading to a more
inter-connected global economy. Economic
integration is consistent with the economic
theory, which argues that the global economy is
better off when markets can function in unison
with minimal government intervention.

https://corporatefinanceinstitute.com/resources/economics/economic
-integration/
https://www.imf.org/en/Publications/WEO/Is
sues/2023/10/10/world-economic-outlook-
october-2023

https://blogs.worldbank.org/developmentt
alk/global-economic-outlook-five-charts-0

https://www.weforum.org/reports/chief-
economists-outlook-jan-2023/

https://www.theglobaleconomy.com/
2.1 Identify and briefly explain major changes in the
world economy over the last 100 years
• The first change is the increased volume of capital movements – the
flows of foreign currency between countries. Global capital
movements now far exceed the dollar volume of global trade. In other
words, currency trading represents the world’s largest market.

• The second change concerns the relationship between productivity

and employment. In the US, manufacturing share of GDP declined in
the last 40-years period, as productivity increased dramatically. Similar
trends can be found in many other major industrial economies as well.
Manufacturing is not in decline—it is employment in manufacturing
that is in decline.

• The third change is the emergence of the world economy as the

dominant economic unit. The real secret of economic success of
Japan and Germany is that business leaders and policy makers focus
on their countries’ competitive positions in world markets.
• The fourth change is the end of the Cold War. The demise of
communism as an economic and political system can be explained in a
straightforward manner: Communism is not an effective economic
system. The overwhelmingly superior performance of the world’s
market economies has given leaders in socialist countries little choice
but to renounce their ideology and introduce democratic reform.

• The fifth change relates to e-commerce. The PC and the Internet

have, in some ways, diminished the importance of national boundaries.
2/3 of American households have PCs. There are 600 million
computers used worldwide. Finally, the personal computer revolution
and the advent of the Internet era have in some ways diminished the
importance of national boundaries. Worldwide, an estimated 1 billion
people use personal computers. In the so-called Information Age,
barriers of time and place have been subverted by a transnational
cyberworld that functions “24/7.” Amazon.com, eBay, Facebook,
Google, Groupon, iTunes, Priceline, Twitter, and YouTube are just a
few of the companies that are pushing the envelope in this brave new
world.
 Global E-commerce

https://seller.alibaba.com/

https://www.bigcommerce.com/articles/ecommerce/global-
commerce/

https://www.shopify.my/enterprise/global-ecommerce-statistics
2.2 Compare and contrast types of economic systems
that are found in the different regions of the world

Market capitalism is an economic system in which individuals and firms allocate resources and
production resources are privately owned. Simply put, consumers decide what goods they desire
and firms determine what and how much of those goods to produce; the role of the state in market
capitalism is to promote competition among firms and to ensure consumer protection. E.g. USA

At the opposite end of the spectrum from market capitalism is centrally planned socialism. In this
type of economic system, the state has broad powers to serve the public interest as it sees fit. State
planners make “top-down” decisions about what goods and services are produced and in what
quantities; consumers can spend their money on what is available. Government ownership of entire
industries as well as individual enterprises is characteristic of centrally planned socialism. E.g. North
Korea.
Market Capitalism
• Individuals and firms allocate resources
• Production resources are privately owned
• Driven by consumers
• Government’s role is to promote competition among firms
and ensure consumer protection
Centrally Planned Socialism
• Opposite of market capitalism
• State holds broad powers to serve the public interest; decides
what goods and services are produced and in what quantities
• Consumers can spend only what is available
• Government owns entire industries and controls distribution
• Demand typically exceeds supply
• Little reliance on product differentiation, advertising, pricing
strategy
• China and India are now moving towards some market
allocation and private ownership
Centrally Planned Capitalism
• Economic system in which command resource allocation is
used extensively in an environment of private resource
ownership
• Example:
– In Sweden, where 2/3 of all expenditures are controlled
by the government, resource allocation is more “voter”
oriented than “market” oriented. Sweden’s “welfare
state” has a hybrid system that has elements of both
centrally planned socialism and capitalism. Swedish
gov’t ownership: TeliaSonera, telecom, 45%; Nordea,
banking, 20%, OMX stock exchange, 7%, SAS airline,
21%.
Market Socialism
• permits market allocation policies within an overall
environment of state ownership
• e.g. China gives freedom to businesses/individuals to
operate in a market system.
Economic Freedom
• Rankings of economic freedom among countries
– “free” “mostly free” “mostly unfree” “repressed”
• Variables considered include such things as:
– Trade policy
– Taxation policy
– Capital flows and foreign investment
– Banking policy
– Wage and price controls
– Property rights
– Black market
Economic Freedom-2023 Rankings

https://www.heritage.org/index/ranking
Economic Freedom

https://www.fraserinstitute.org/sites/default/files/economic
-freedom-of-the-world-2023.pdf
2.3 Explain the stages of economic development used
by the World Bank and identify the key emerging
country markets at each stage of development

The World Bank has defined four categories of development

using Gross National Income (GNI) as a base:
• Low-income countries
• Lower-middle-income countries
• Upper-middle-income countries
• High-income countries

https://datatopics.worldbank.org/world-development-
indicators/the-world-by-income-and-region.html

https://datahelpdesk.worldbank.org/knowledgebase/arti
cles/906519-world-bank-country-and-lending-groups
Low-Income Countries
• GNI per capita of $1,135 or less
• Characteristics
– Limited industrialization
– High percentage of population in farming
– High birth rates
– Low literacy rates
– Heavy reliance on foreign aid
– Political instability and unrest
– Concentrated in Sub-Saharan Africa
Lower-Middle-Income Countries
• GNI per capita: $1,136 to $4,465
• Characteristics
– Rapidly expanding consumer markets
– Cheap motivated labor
– Mature, standardized, labor-intensive industries like
footwear, textiles, and toys
• 50 bottom-ranked countries are LDCs- least developed
countries
• India is the only BRICS nation in lower-middle-income group.
• Tajikistan and Uzbekistan may be opportunities for economic
growth
Bottom of the Pyramid (BOP): misconceptions
(1) The poor have no money. In Bangladesh villagers
spend considerable sums to use village phones
operated by local entrepreneurs;
(2) the poor are too concerned with fulfilling basic needs
to "waste" money on nonessential goods. Consumers
who are too poor to purchase a house do buy luxury
goods such as televisions and cell phones;
(3) the goods sold in developing markets are so
inexpensive that there is no room for a new market
entrant to make a profit. Since the poor often pay
higher prices for many goods, there is an opportunity
for efficient competitors to realize attractive margins
by offering quality and low prices;
(4) people in BOP markets cannot use advanced
technology. Residents of rural areas can and do
quickly learn to use cell phones and PCs; and
(5) global companies that target BOP markets will be
criticized for exploiting the poor. A global company
offering basic goods and services that improve a
country's standard of living can earn a reasonable
return while benefiting society.
Upper-Middle-Income Countries
GNI per capita: $4,466 to $13,845
Characteristics:
• Rapidly industrializing, less
agricultural employment
• Increasing urbanization
• Rising wages
• High literacy rates and advanced Nestle invested $83 billion for this
education plant in Brazil and millions more
around the country.
• Lower wage costs than advanced
countries https://data.worldbank.org/indicator/N
Y.GNP.PCAP.CD?locations=MY
• BRICS: Brazil, Russia, China, South Africa
Newly Industrializing Economies (NIEs)
• Lower-middle and upper-middle-income economies with
high sustained rates of economic growth
– Greater industrial output than developing economies
– Exports of manufactured and refined products
– Next -11 (N-11) a new country grouping identified by
Goldman Sachs
▪ Bangladesh, Egypt, Indonesia, Iran, Mexico,
Nigeria, Pakistan, Philippines, Turkey, and Vietnam
High-Income Countries (1 of 2)
• GNI per capita: $13,846 or more
• Also known as advanced, developed, industrialized, or
postindustrial countries
• Characteristics:
– Sustained economic growth through disciplined
innovation
– Households have extremely high ownership levels of
basic products
High-Income Countries (2 of 2)
• Characteristics, continued:
– Importance of information processing and exchange
– Ascendancy of knowledge over capital, intellectual
over machine technology, scientists and
professionals over engineers and semiskilled
workers
– Future oriented
– Importance of interpersonal relationships
G-7, The Group of Seven
• Goal of global economic
stability and prosperity
– U.S.
The Group of Seven (G7) is an inter-governmental forum
– Japan consisting of Canada, France, Germany, Italy, Japan,
the United Kingdom and the United States. In addition,
– Germany the European Union is a 'non-enumerated member'. Its
members are the world's largest IMF advanced
– France economies and wealthiest liberal democracies; The group is
officially organized around shared values
– Britain of pluralism and representative government. As of 2020, the
collective group accounts for over 50 percent of global net
– Canada wealth (which is $418 trillion), 32 to 46 percent of
global gross domestic product, and approximately 770 million
– Italy people or 10 percent of the world's population. Members
are great powers in global affairs and maintain mutually
close political, economic, social, legal, environmental,
military, religious, cultural, and diplomatic relations.
G-20, Group of Twenty
• Established in 1999
• https://g20.org/
The G20 or Group of Twenty is an inter-governmental forum
comprising 19 countries and the European Union (EU). It works to
address major issues related to the global economy, such as
international financial stability, climate change mitigation,
and sustainable development.

The G20 is composed of most of the world's largest economies,

including both industrialized and developing nations, and accounts for
around 90% of gross world product (GWP), 75–80% of international
trade, two-thirds of the global population, and roughly half the world's
land area.

Member nations are Argentina, Australia, Brazil, Canada, China,

France, Germany, India, Indonesia, Italy, Japan, the Republic of
Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United
Kingdom, the United States of America plus the European Union.
 OECD, The Organisation for Economic
Cooperation and Development
• https://www.oecd.org/
• 38 nations
• Promotes economic The Organisation for Economic Co-operation and
Development (OECD) is an inter-governmental
growth and social well- organization with 38 member countries, founded in
1961 to stimulate economic progress and world trade. It
being is a forum the members of which are countries
describing themselves as committed to democracy and
• Focuses on world trade, the market economy, providing a platform to compare
policy experiences, seek answers to common
global issues, labor problems, identify good practices and coordinate
domestic and international policies of its members. The
market deregulation majority of OECD members are high-income
economies with a very high Human Development
Index (HDI) and are regarded as developed countries.
As of 2017, the OECD member countries collectively
comprised 62.2% of global nominal GDP (US$49.6
trillion) and 42.8% of global GDP (US$54.2 trillion)
at purchasing power parity. The OECD is an
official United Nations observer.
Global Marketing

Topic 3

The Global Trade

Environment
3.1 Explain the role of the WTO in facilitating
global trade relations among nations.
The World Trade Organization (WTO) is
• Forum for trade-related an intergovernmental organization that regulates and
facilitates international trade. Governments use the
negotiations among 164 organization to establish, revise, and enforce the rules
that govern international trade. It officially commenced
members operations on 1 January 1995, replacing the General
Agreement on Tariffs and Trade (GATT) that had been
– Based in Geneva established in 1948. The WTO is the world's largest
international economic organization, with 164 member
– Serves as dispute states representing over 98% of global trade and global
GDP.
mediator through
Dispute Settlement The WTO facilitates trade in goods, services and
intellectual property among participating countries by
Body (DSB)
)
providing a framework for negotiating trade
agreements, which usually aim to reduce or
– Has enforcement eliminate tariffs, quotas, and other restrictions; these
agreements are signed by representatives of member
power and can governments and ratified by their legislatures. The
impose sanctions WTO also administers independent dispute
resolution for enforcing participants' adherence to trade
– https://www.wto.org agreements and resolving trade-related disputes. The
organization prohibits discrimination between trading
partners, but provides exceptions for environmental
protection, national security, and other important goals.
https://www.wto.org/english/thewto_e/countries_e/org6_map_e.htm
Preferential Trade Agreements
• Many countries seek to
lower barriers to trade
within their regions
• PTAs give partners special
treatment and may
discriminate against others
• Over 300 PTAs have been
Preferential Trade Agreements, or PTAs, are
formal arrangements of trade between countries
that see benefits from trade amongst themselves.
In many cases, these benefits are the product of
proximity; countries close to one another are
better able to conduct trade both because of lower
transportation costs and greater possibilities for
transparency. When trade agreements are
constructed in this regional manner, they are
sometimes referred to as Regional Trade
Agreements, or RTAs.

notified to the WTO

https://rtais.wto.org/UI/PublicMaintainRTAHome.aspx

https://en.wikipedia.org/wiki/Preferential_trading_area
3.2 Compare and contrast the four main categories of
economic integration.

4 categories: Free Trade Area, Customs Union, Common

Market, Economic Union
Free trade areas such as the one created by the Asean Free Trade Area
(AFTA) represent the lowest level of economic integration. The purpose of a
free trade agreement (FTA) is to eliminate tariffs and quotas. Rules of origin
are used to verify the country from which goods are shipped.

A customs union, such as Mercosur, represents a further degree of integration

in the form of common external tariffs (CET).

In a common market, such as the Central American Integration System (SICA)

and the East African Community, restrictions on the movement of labor and
capital are eased in an effort to further increase integration.

An economic union, such as the EU, the highest level of economic integration,
is achieved by unification of economic policies and institutions. Harmonization,
the coming together of varying standards and regulations, is a key
characteristic of the EU.
Economic Integration

https://en.wikipedia.org/wiki/Economic_integration
https://www.wto.org/english/tratop_e/region_e/rta_plurilateral_map_e.htm

https://www.wto.org/english/tratop_e/region_e/region_e.htm
Free Trade Area
• Two or more countries agree
to abolish tariffs and other
barriers to trade amongst
themselves
• Countries continue
independent trade policies
with countries outside
agreement
Protesters opposed a trade
• Rules of origin requirements agreement in Vienna, 2016
restrict transshipment of
goods from the country with
the lowest tariff to another
ASEAN Economic Community (AEC)
• The ten ASEAN nations launched an economic bloc called the ASEAN Economic
Community (AEC). The AEC is the realization of the region’s end goal of economic
integration. It envisions ASEAN as a single market and product base, a highly
competitive region, with equitable economic development, and fully integrated into the
global economy.

• The history of AEC can be traced back as far as 1992 when the ASEAN Leaders
mandated the creation of the ASEAN Free Trade Area (AFTA). Since then, efforts were
intensified to broaden the region’s economic potentials. The adoption of ASEAN Vision
2020 by the Leaders in 1997 has further envisaged ASEAN as a highly competitive
region with free flow of goods, services, investments, a freer flow of capital, equitable
economic development and reduced poverty and socio-economic disparities.

• Although tariffs have been cut in the region, nontariff barriers, including cumbersome
labor laws, lack of harmonization in product standards, and bureaucracy, are some of the
issues that have yet to be resolved.

• Also, ASEAN is not a customs union, so import/export activities are conducted with
different procedures. As a result, goods can languish in ports for weeks while documents
are reviewed and approved. Much work remains to be done before the AEC evolves into
a customs union or common market.

https://asean.org/our-communities/economic-
community/
Customs Union
• Evolution of Free Trade Area
• Includes the elimination of internal barriers to trade (as
in FTA)
• And establishes common external barriers (CETs) to
trade - A common external tariff is an import tariff
applied equally by each country participating in a
customs union
– Examples: Andean Community (CAN), Caribbean
Community (CARICOM)
Common Market
• A common market is a type of trade bloc in which most
trade barriers have been removed (for goods) with some
common policies on product regulation, and freedom of
movement of the factors of production (capital and labour)
and of enterprise and services.
• Includes the elimination of internal barriers to trade (as in
free trade area)
• And establishes common external barriers to trade (as in
customs union)
• And allows for the free movement of factors of
production, such as labor, capital, and information
• Example - East African Common Market
Economic Union (1 of 2)
• Includes the elimination of internal barriers to trade (as in
free trade area)
• And establishes common external barriers to trade (as in
customs union)
• And allows for the free movement of factors of production,
such as labor, capital, and information (as in common
market)
• And coordinates and harmonizes economic and social
policy within the union
• Example - In the European Union, countries must
harmonize their licensing standards so that professionals
such as doctors or lawyers qualified in one country may
work in another. Harmonization is an important concept to
be stressed.
Economic Union (2 of 2)
• Full evolution of economic union
– creation of unified central bank
– use of single currency
– common policies on issues such as agriculture, social
policy, transport, competition, mergers, taxation
– requires extensive political unity
– would lead to a central government in time

https://european-union.europa.eu/index_en
European Union impact on marketing strategies
• The European Union has concluded over 20 different trade pacts with other nations. The business
environment in Europe has undergone considerable transformation with significant implications for all
elements of the marketing mix.

• For example, there is harmonization of product standards, thereby reducing the number of
adaptations needed in each country.

• Similarly, from a pricing point of view the environment has become more competitive. Common
guidelines are also set for promotion and distribution. Thus, all components of the marketing mix are
getting standardized and harmonized.

• Corporations are beginning to treat the entire region as one entity with very little adaptation. For
example, France will be able to shop around for distributions of products or services and select the
best one in any member country. This selection can be based on cost, quality, or local preferences.

• Food safety laws can also be made uniform with some modifications that can be adapted. The
members in the European Union will find it easier to do business at any of the member countries
including setting up of manufacturing plants or headquarters. It will also help in balancing the
inventory and moving products from one country to another in case of shortages