International Economic Environment

International Economic Environment

With money, all things are possible. Without money, many things are impossible for the marketer. Luxury products, for example, cannot be sold to low-income consumers. Sophisticated industrial products require sophisticated industries as buyers. Hypermarkets for food, furniture, or durables require a large base of consumers with the ability to make large purchases of goods and the ability to drive away with those purchases.

International Economic Environment

There is global economic growth today in contrast to any previous time in the history of the world. For the first time in the history of global marketing, markets in every region of the world are potential targets for almost every company from high tech to low tech, across the spectrum of products from basic to luxury.

GLOBAL DATA

Each country has national accounts data, indicating estimates of gross national product, gross domestic product, consumption, investment, government expenditures, and price levels. A single source, The Statistical Yearbook of the United Nations, contains global data on agriculture, mining, manufacturing, construction, energy production and consumption, internal and external trade, railroad and air transport, wages and prices, health, housing, education, communication (mail, telegraph, and telephone), and mass communications by book, film, radio, and television.

Types of Economic Systems

There are three types of economic systems: Capitalist Socialist Mixed This classification is based on the dominant method of resource allocation: Market allocation, command or central plan allocation, and mixed allocation, respectively.

Market Allocation

To allocate resources a market allocation system is one that relies on consumers. Consumers "write" the economic plan by deciding what will be produced by whom. The role of the state in a market economy is to promote competition and ensure consumer protection.

Market Allocation

The United States, most Western European countries, and Japanthe triad countries that account for three quarters of gross world productare examples of predominantly market economies. The clear superiority of the market allocation system in delivering the goods and services that people need and want has led to its adoption in many formerly socialist countries.

Command Allocation

The state has broad powers to serve the public interest in a command allocation system. These include deciding which products to make and how to make them. Consumers are free to spend their money on what is available, but decisions about what is produced and, therefore, what is available are made by state planners. Because demand exceeds supply, the elements of the marketing mix are not used as strategic variables. Three of the most populous countries in the world China, the former USSR, and Indiarelied on command allocation systems for decades. All three countries are now engaged in economic reforms directed at shifting to market allocation systems.

Mixed System

All market systems have a command sector, and all command systems have a market sector; in other words, they are "mixed". There are, in reality, no pure market or command allocation systems among the world's economies. In a market economy, the command allocation sector is the proportion of gross domestic product (GDP) that is taxed and spent by government. For the 24 member countries of the Organization for Economic Cooperation and Development (OECD), this proportion ranges from 32 percent of GDP in the United States to 64 percent in Sweden. In Sweden, therefore, where 64 percent of all expenditures are controlled by government, the economic system is more "command" than "market." The reverse is true in the United States. Similarly, farmers in most socialist countries were traditionally permitted to offer part of their production in a free market.

Market Development and its Stages

GNP per capita provides a very useful way of grouping global country markets at different stages of development. Using GNP as a base, we have divided global markets into four categories. Countries in each of the four categories have similar characteristics, although the income defining for each of the stages is arbitrary, thus the stages provide a useful basis for global market segmentation and target marketing

Classification of nations based on GNP Per Capita

Low income / Underdeveloped - $1,035 or less Lower middle income / Developing - $1,036 $4,085 Upper middle income / Developing - $4,086 $12,615 High income / Developed - $12,616 or more.

Low-Income Countries

Pre-industrial countries, also know as Low-income countries, are those with income for less than Rs 34741.2 per capita. They constitute 37 percent of the world population but less than 3 percent of world GNP. The following characteristics are shared by countries at this income level: Limited industrialization and a high percentage of the population engaged in agriculture and subsistence farming High birthrates Low literacy rates Heavy reliance on foreign aid Political instability and unrest Concentration in Africa, south of the Sahara

Low-Income Countries

In general, these countries represent limited markets for all products and are not significant locations for competitive threats. Still, there are exceptions; for example, in Bangladesh, where GNP per capita is Rs 16323.6, a growing garment industry has enjoyed immense exports.

Lower-Middle-Income Countries

Lower-middle-income countries (also known as less developed countries or LDCs) are those with a GNP per capita of more than Rs 35071.32 to 139437.5 These countries constitute 39 percent of the world population but only 11 percent of world GNP. These countries are at the early stages of industrialization. Factories supply a growing domestic market with such items as clothing, batteries, tyres, building materials, and packaged foods. These countries are also locations for the production of standardized or mature products such as clothing for export markets.

Lower-Middle-Income Countries

In these countries consumer markets are expanding. LDCs represent an increasingly competitive threat as they mobilize their relatively cheapand often highly motivated labor to serve target markets in the rest of the world. LDCs have a major competitive advantage in mature, standardized, labor-intensive products such as athletic shoes. Indonesia, the largest country in Southeast Asia, is a good example of an LDC on the move: Despite political problems GNP per capita has risen from Rs 11150 in 1985 to 52449.6 in 2000. Several factories there produce athletic shoes under contract for Nike.

Upper-Middle-Income Countries

Also know as industrializing countries, are those with GNP per capita between Rs 139419.6 and 430613. These countries account for 7 percent of world population and almost 7 percent of world GNP. In these countries, the percentage of population engaged in agriculture drops sharply as people move to the industrial sector and the degree of urbanization increases. Many of the countries in this stageMalaysia, for exampleare rapidly industrializing. They have rising wages and high rates of literacy and advanced education, but they still have significantly lower wage costs than the advanced countries.

High-Income Countries

High-income countries, also known as advanced, industrialized, postindustrial, or First World countries, are those with GNP per capita above Rs 430613. With the exception of a few oil-rich nations, the countries in this category reached their present income level through a process of sustained economic growth. These countries account for only 16 percent of world population but 82 percent of world GNP.

Basket Cases

A basket case is a country with economic, social, and political problems that are so serious they make the country unattractive for investment and operations. Some basket cases are low-income, no-growth countries, such as Ethiopia and Afghanistan that lurch from one disaster to the next. Others are once growing and successful countries that have become divided by political struggles. The result is civil strife, declining income, and, often, considerable danger to residents. Basket cases embroiled in civil wars are dangerous areas; most companies find it prudent to avoid these countries during active conflict. Most marketers tend to stay away from these countries or do business on a limited basis.

The four degrees of economic cooperation and integration

A group of counties come together and agree to cooperate in international trade by various means. Mainly economic advantages. Trade creation and trade diversion, reduced Import Prices, Increased competition and economies of scale, Higher factor Productivity. Political Factors and power in international markets.

Free Trade Area (FTA)

A free trade area (FTA) is a group of countries that have agreed to abolish all internal barriers to trade among themselves. Countries that belong to a free trade area can and do maintain independent trade policies with third countries. Customs inspectors police the borders between members. The Canada-U.S. Free Trade Area formally came into existence in 1989. In 1992, representatives from the United States, Canada, and Mexico concluded negotiations for the North American Free Trade Agreement (NAFTA). The agreement was approved by both houses of the U.S. Congress and became effective on January 1, 1994.

Customs Union

A customs union represents the logical evolution of an FTA. In addition to eliminating the internal barriers to trade, members of a customs union agree to the establishment of common external barriers. The Central American Common Market is an examples of customs unions.

Common Market

A common market builds on the elimination of the internal tariff barriers and the establishment of common external barriers. A common market goes beyond the removal of internal barriers to trade and the establishment of common external barriers to the important next stage of eliminating the barriers to the flow of factors (labor and capital) within the market. It seeks to coordinate economic and social policy within the market to allow free flow of capital and labor from country to country. Thus, a common market creates an open market not only for goods but also for services and capital

Economic Union

A fully developed economic union requires extensive political unity, which makes it similar to a nation. The full evolution of an economic union would involve the creation of a unified central bank; the use of a single currency; and common policies on agriculture, social services and welfare, regional development, transport, taxation, competition and mergers, construction and building, and so on. The further integration of nations that were members of fully developed economic unions would be the formation of a central government that would bring together independent political states into a single political framework. The European Union (EU) is approaching its target of completing most of the steps required to create a full economic union, but major hurdles remain.

Economic Integration in Regional Markets

Economic Union

Common Market
Customs Union
Free Trade Area
Common External Trade Policy Factor Mobility Harmonization of Economic Policies