1 Global Marketing Chapter 2 & 3 The Global Economic Environment

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Global MarketingChapter 2 & 3

The Global Economic

Environment

©2011 Pearson Education, Inc. publishing as Prentice Hall

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The World Economy—An Overview

• In the early 20th century economic integration was at 10%; today it is 50%

• Integration is particularly striking in the two regions EU and NAFTA.

• Global competitors have displaced or absorbed local ones


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• The new realities:– Capital movements have replaced trade as the

driving force of the world economy.– Production has become uncoupled from

employment.Gross domestic product (GDP) , a measure of a

nation’s economic activity, is calculated by adding consumer spending (C), investment spending, (I), government purchases, (G), and net exports (NX):

C+I+G+NX = GDP– The world economy, not individual countries, is the

dominating factor.


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The new realities, continued:• 75-year struggle between

capitalism and socialism has almost ended

• E-Commerce diminishes the importance of national barriers and forces companies to re-evaluate business models


Economic System

• Criteria used to categorize economic system1- Type of economy: Industrial state, emerging

economy, transition economy, developing nation.2- Type of government: Monarchy, dictatorship, or a

tyrant, autocratic one-party system, democracy with a multi-party system, dominated by other state, unstable or terrorist nation.

3- Trade and capital flows4- The commanding height5- Services provided by the state and funded through

taxes.6- Institutions7- Markets


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Economic Systems

Resource Allocation

Market Command

Private

Resource

Ownership

State

Market Capitalism

Market Socialism

Centrally Planned

Capitalism

Centrally Planned

Socialism


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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

• U.S “wild free for all”. Japan as Japan Inc.


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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, India, and the former USSR now

moving towards some economic freedom


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Centrally Planned Capitalism & Market socialism

CPC Economic system in which command resource allocation is used extensively in an environment of private resource ownership

- Example: Swedish government controls 2/3s of all spending; a hybrid of CPS and capitalism

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).


GATT

• General Agreement on Tariffs and Trade– Treaty among nations to promote trade

among members established in 1947•Handled trade disputes•Lacked enforcement power•Replaced by World Trade

Organization in 1995


The World Trade Organization

• Forum for trade-related negotiations among 150 members– Based in Geneva– Serves as dispute

mediator through DSB

– Has enforcement power and can impose sanctions


• Many countries seek to lower barriers to trade within their regions

• PTAs give partners special treatment and may discriminate against others

• Over 150 PTAs have been notified to the WTO

Preferential Trade Agreements


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

• Rules of origin requirements restrict transshipment of goods from the country with the lowest tariff to another

NAFTA Protest in Ottawa


Customs Union

• Evolution of Free Trade Area• Includes the elimination of internal

barriers to trade (as in FTA)• AND establishes common external

barriers to trade• Examples: The EU and Turkey, the Andean

Community, Mercosur, CARICOM, Central American Integration System (SICA)


Common Market

• 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


Economic Union

• 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


Economic Union

• 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

European Union Flag


North America—NAFTA

• Canada, United States, Mexico• NAFTA established free trade area

–All three nations pledge to promote economic growth through tariff reductions and expanded trade and investment–No common external tariffs–Restrictions on labor and other movements remain

U.S.-Mexico Border Crossing


NAFTA Income and Population


What are the most important trading arrangements in Latin America?

Important trading arrangements include:

• Central American Integration System (SICA)

• Andean Community• The Common Market of the South

(Mercosur)• The Caribbean Community and

Common Market (CARICOM).


Asia-Pacific: The Association of Southeast Asian Nations (ASEAN)

• The Association of Southeast Asian Nations (ASEAN) was established in 1967 as an organization for economic, political, social, and cultural cooperation among its member countries.


The European Union (EU)

• Initially began with the 1958 Treaty of Rome

• Objective is to harmonize national laws and regulations so that goods, services, people, and money could flow freely across national boundaries

• 1991 Maastricht Treaty set stage for transition to an economic union with a central bank and single currency (the Euro)


European Union

• 27 countries• 491 million people• Combined GNI of $14.7 trillion• Euro currency,

1999• Harmonization of

laws and regulations


Marketing Issues in EU

• Marketing mix issues must be addressed in Europe's single market (e.g., content and other product standards that varied among nations must be harmonized). Harmonization means that content and other product standards that varied among nations have been brought into alignment.

• Direct comparability of prices in the euro zone forces companies to review pricing policies; the marketing challenge is to develop strategies to take advantage of a large, wealthy market.

• The enlargement of the EU will further impact marketing strategies and harmonized laws; food safety laws in the EU are different form those in Central European countries.


Marketing Issues in EU (Cont’d)

• Because they are in transition, the markets of Central and Eastern Europe present interesting opportunities and challenges.

• Global companies view the region as an important new source of growth, and the first country to penetrate a country market often emerges as an industry leader.


The Middle East

• Afghanistan, Bahrain, Cyprus, Egypt, Iran, Iraq, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, the United Arab Emirates, Yemen– Primarily Arab, some Persian and Jews– 95% Muslim, 5% Christian and Jewish– 34.7 million people, 24 million in Saudi Arabia– 25% of world’s oil in Saudi Arabia– Strong impact of world economic crisis on

Dubai


Gulf Cooperation Council

•Established in 1981 by 6 countries with 45% of world’s oil

•These countries are attempting to diversify industries


Marketing Issues in Middle East

• Connection is a key word in conducting business in the Middle East; developing relationships with key business and government figures are likely to cut through red tape.

• Bargaining is culturally ingrained, and business people should be prepared for haggling; establishing personal trust, mutual trust, and respect are essential.

• Decisions are not made by correspondence or telephone. The Arab businessperson does business with the individual, not the company.

• Women are not part of the business or entertainment scene for traditional Muslim Arabs.


Africa

• 54 nations over three distinct areas– Republic of South Africa– North Africa– Black Africa or sub-Saharan Africa

• With 1.3 percent of the world's wealth and 11.5 percent of its population, Africa is a developing region with an average per capita income of less than $600.

• The Arabs living in North Africa are differentiated politically and economically.

• The six northern nations are richer and more developed, and several—notably Libya, Algeria, and Egypt— benefit from large oil resources.


For what does the acronym “Mena” stand?

• The Middle East and North Africa are viewed as a regional entity “Mena”; the economies of non-oil, “emerging Mena” (Jordan, Lebanon, Morocco, Tunisia) have performed best.


Regional agreements (Africa)

– Economic Community of West African States (ECOWAS).

– East African Cooperation.

– South African Development Community (SADC).

Documents

1 Global Marketing Chapter 2 & 3 The Global Economic Environment