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Chapter 2 The Global Economic Environment. Review of Chapter 1. What is Global Marketing? How is it different from regular marketing?. Reasons for Global Marketing. Growth Access to new markets Access to resources Survival

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review of chapter 1
Review of Chapter 1
  • What is Global Marketing?
  • How is it different from regular marketing?
reasons for global marketing
Reasons for Global Marketing
  • Growth
    • Access to new markets
    • Access to resources
  • Survival
    • Against competitors with lower costs (due to increased access to resources)
global marketing what it is and what it isn t
Global Marketing: What it is and What it isn’t
  • Strategy development comes down to two main issues similar to single country marketing
    • Target market
    • Marketing Mix
the importance of global marketing
The Importance of Global Marketing
  • For US-based companies, 75% of sales potential is outside the US.
    • About 90% of Coca-Cola’s operating income is generated outside the US.
  • For Japanese companies, 85% of potential is outside Japan.
  • For German and EU companies, 94% of potential is outside Germany.
standardization versus adaptation
Standardization versus Adaptation
  • Globalization (Standardization)
    • Developing standardized products marketed worldwide with a standardized marketing mix
    • Essence of mass marketing
  • Global localization (Adaptation)
    • Mixing standardization and customization in a way that minimizes costs while maximizing satisfaction
    • Essence of segmentation
    • Think globally, act locally
management orientations
Management Orientations

Ethnocentric:

Home country is

Superior, sees

Similarities in foreign

Countries

Polycentric:

Each host country Is

Unique, sees differences

In foreign countries

Regiocentric:

Sees similarities and

differences in a world

Region; is ethnocentric or

polycentric in its view of

the rest of the world

Geocentric:

World view, sees

Similarities and

Differences in home

And host countries

forces affecting global integration and global marketing
Driving Forces

Regional economic agreements

Market needs and wants

Technology

Transportation and communication improvements

Product development costs

Quality

World economic trends

Leverage

Restraining Forces

Management myopia

Organizational culture

National controls

Forces Affecting Global Integration and Global Marketing
introduction to chapter 2
Introduction to Chapter 2
  • Market definition – People or organizations with needs and wants; both have the willingness and ability to buy or sell
  • The global economic environment plays a large role in the development of new markets for organizations
turkish trading partners 2005
Turkish Trading Partners (2005)
  • Germany 13%,
  • UK 8.2%,
  • Italy 7%,
  • US 6.9%,
  • France 5.1%,
  • Spain 4.2%
gini coefficient
Gini coefficient
  • The Gini coefficient is a measure of statistical dispersion most prominently used as a measure of inequality of income distribution or inequality of wealth distribution. It is defined as a ratio with values between 0 and 1: A low Gini coefficient indicates more equal income or wealth distribution, while a high Gini coefficient indicates more unequal distribution. 0 corresponds to perfect equality (everyone having exactly the same income) and 1 corresponds to perfect inequality (where one person has all the income, while everyone else has zero income). The Gini coefficient requires that no one have a negative net income or wealth. Worldwide, Gini coefficients range from approximately 0.232 in Denmark to 0.707 in Namibia although not every country has been assessed.
  • The Gini index is the Gini coefficient expressed as a percentage. Thus Denmark's Gini index is 23.2%.
human development index
Human Development Index
  • The Human Development Index (HDI) is an index combining normalized measures of life expectancy, literacy, educational attainment, and GDP per capita for countries worldwide. It is claimed as a standard means of measuring human development—a concept that, according to the United Nations Development Program (UNDP), refers to the process of widening the options of persons, giving them greater opportunities for education, health care, income, employment, etc. The basic use of HDI is to rank countries by level of "human development", which usually also implies to determine whether a country is a developed, developing, or underdeveloped country.
u s multinational in europe 1960 s
U.S. Multinational in Europe - 1960’s

Fifteen years from now the world’s third greatest industrial power, just after the United States and Russia, may not be Europe, but American industry in Europe.

2-3

J.S. Servan Schreiber:

Le Defi American, 1967

What Happened?

slide26

The Nationality of the World’s 100 Largest Industrial Corporations (by country of origin)

1963 1979 1984 1990 1993 1995 1996 2000

United States 67 47 47 33 32 24 24 36

Germany 13 13 8 12 14 14 13 12

Britain 7 7 5 6 4 1 2 5

France 4 11 5 10 6 12 13 11

Japan 3 7 12 18 23 37 29 22

Italy 2 3 3 4 4 3 4 3

Netherlands-United Kingdom 2 2 2 2 2 2 2 --

Netherlands 1 3 1 1 1 2 2 5

Switzerland 1 1 2 3 3 3 5 3

Argentina -- -- 1 -- -- -- -- --

Belgium -- 1 1 -- -- -- -- 1

Brazil -- 1 -- 1 1 -- -- --

Canada -- 2 3 -- -- -- -- --

India -- -- 1 -- -- -- -- --

Kuwait -- -- 1 -- -- -- -- --

Mexico -- 1 1 1 1 -- 1 --

Venezuela -- 1 1 1 1 -- 1 --

South Korea -- -- 4 2 4 2 4 --

Sweden -- -- 1 2 1 -- -- --

South Africa -- -- 1 1 -- -- -- --

Spain -- -- -- 2 2 -- -- --

Turkey -- -- -- -- 1 -- -- --

China -- -- -- -- -- -- -- 2

2-4

the world economy an overview
The World Economy – An Overview
  • The new realities:
    • Capital movements have replaced trade as the driving force of the world economy
    • Production has become uncoupled from employment
    • The world economy, not individual countries, is the dominating factor
the world economy an overview28
The World Economy – An Overview
  • 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 systems
Economic Systems
  • 4 main types of economic systems
    • Market Capitalism
    • Centrally planned socialism
    • Centrally planned capitalism
    • Market socialism
economic systems30
Economic Systems

Resource Allocation

Market Command

Centrally

Planned

Capitalism

Private

Resource

Ownership

State

Market

Capitalism

Centrally

Planned

Socialism

Market

Socialism

economic freedom
Economic Freedom
  • Rankings of economic freedom among countries
    • Ranges from “free” to “repressed”
  • Variables considered include such things as:
    • Trade policy
    • Taxation policy
    • Banking policy
    • Wage and price controls
    • Property rights
economic freedom32
Free

Hong Kong

Singapore

Ireland

New Zealand

United States

United Kingdom

Netherlands

Australia

Switzerland

Repressed

Bosnia

Vietnam

Laos

Iran

Cuba

Iraq

Libya

North Korea

Congo

Economic Freedom
buying boom for asia 1995 2000
Buying Boom for Asia, 1995-2000

What the added Between 1993 and

middle class will 1995 2000

buy (In million)

73.3

Millions of households approaching $18,000 per year buying power Indexed to Singapore prices

Bedrooms 32 116

Living Rooms 16 58

Kitchens 16 58

Bathrooms 32 116

Living space (sq.m.) 1,200 4,350

Large appliances 16 58

Televisions 24 87

Telephones 24 87

Cars 16 58

32.5

14.4

1991

1995

2000

SOURCE: Bill Saporito, “Where the Global Action Is.” Fortune, Autumn-Winter 1993, p.64.

slide34

What Would One U.S. Dollar Buy? (Selected Years)

1985 1987 1988 1992 1993 1994 1995 1996 1997 1999 2000

British Pound 0.86 0.67 0.54 0.56 0.66 0.68 0.63 0.64 0.59 0.62 0.68

French Franc 9.6 7.55 5.4 5.29 5.67 5.55 4.95 5.12 5.94 6.49 7.28

Japanese Yen 250.23 123.32 123.70 126.70 111.08 102.18 93.96 108.78 129.15 102.58 112.21

Swiss Franc 2.25 2.07 1.29 1.41 1.48 1.37 1.18 1.24 1.43 1.58 1.68

EURO 0.99 1.11

Mexico Peso 0.37 2.21 2.28 3.12 3.11 5.31 6.45 7.60 7.92 9.43 9.47

* Foreign Exchange Rates for 1999 and 2000 are the average rate pf exchange in December.

Source: Adapted from www.stat-usa.gov

the price of protectionism
The Price of Protectionism

Industry Total Costs to Number of Cost per

Consumers Jobs Saved Job Saved

(in $ millions)

Textiles and apparel $27,000 640,000 $ 42,000

Carbon Steel 6,800 9,000 $ 750,000

Autos 5,800 55,000 $ 105,000

Dairy products 5,500 25,000 $ 220,000

Shipping 3,000 11,000 $ 270,000

Meat 1,800 11,000 $ 160,000

SOURCE: Michael McFadden, “Protectionism Can’t Protect Jobs,” Fortune, May11, 1987, pp. 125.

big emerging markets
Big Emerging Markets
  • China
  • India
  • Indonesia
  • South Korea
  • Brazil
  • Mexico
  • Argentina
  • South Africa
  • Poland
  • Turkey

██ Emerging markets██ Developed markets

rapidly developing economies
Rapidly Developing Economies
  • The term "rapidly developing economies" is now being used to denote emerging markets such as
    • The United Arab Emirates,
    • Chile and
    • Malaysia
  • that are undergoing rapid growth.
stages of market development40
Stages of Market Development
  • World Bank has defined four categories of development
    • High-income countries
    • Upper-middle income countries
    • Lower-middle income countries
    • Low-income countries
  • Based upon Gross National Product (GNP)
marketing opportunities in ldcs
Marketing Opportunities in LDCs
  • Characterized by a shortage of goods and services
  • Long-term opportunities must be nurtured in these countries
    • Look beyond per capita GNP
    • Consider the LDCs collectively rather than individually
    • Consider first mover advantage
    • Set realistic Deadlines
turkey42
Turkey

Return

influencing the world economy
Influencing the World Economy
  • Group of Seven (G-7)
  • Organization for Economic Cooperation and Development
  • The Triad
slide44

The Triad: Trade Between the United States and Canada, the European Community, and Japan, 1997 ($ billions)

EUROPEAN

COMMUNITY

31.4

97.1

110.9

68.8

JAPAN

UNITED STATES & CANADA

52.7

99.5

For additional figures see: “Indicators of Market Size for 115 Countries I” Crossborder Monitor, August, 1994, pp.4-7

slide45
N-11
  • The Next Eleven (or N-11) is a short list of countries named by Goldman Sachsinvestment bank on 1 December 2005 as having promising outlooks for investment and future growth.
slide47
BRIC
  • BRIC or BRICs are terms used to refer to the combination of Brazil, Russia, India, and China.
  • The economies of the BRICs are rapidly developing and by the year 2050 will eclipse most of the current richest countries of the world.
bricet
BRICET
  • "BRIMC" (M for Mexico),
  • "BRICS" (S for South Africa)
  • "BRICET" (including Eastern Europe and Turkey)

have become more generic marketing terms to refer to these emerging markets.

market characteristics
Market Characteristics
  • Population demographics

- Age distribution, life expectancy, household size, urbanisation

  • Income

- Low, Medium and High

- GDP per capita

- Purchasing Power Parity (PPP)

  • Consumption Patterns

- Income spent on necessities and luxuries

- Product saturation and diffusion

- Product form differences

market characteristics50
Market Characteristics

Availability and quality of infrastructure

- Distribution networks (road, rail)

- Communication systems for marketing

- Supply and use of energy

Foreign involvement in the economy

- Degree of FDI (foreign direct investments) and the industries

- Investment rules and guidelines

Impact of economic environment on social development

- urbanisation, life expectancy, literary rates, physical quality of life index (PQLI)

marketing implications of the stages of development
Marketing Implications of the Stages of Development
  • Product Saturation Levels
    • The percentage of potential buyers or households that own a particular product
    • Graph shows that in India a private phone is owned by 1% of the population
balance of payments
Balance of Payments
  • The balance of payments (or BOP) measures the payments that flow between any individual country and all other countries.
balance of payments 2005
Balance of Payments (2005)

Blue = countries in current account surplus; Red = countries in current account deficit, 2005

managed dirty float
Managed Dirty Float?
  • Definitions
    • Float refers to the system of fluctuating exchange rates
    • Managed refers to the specific use of fiscal and monetary policy by governments to influence exchange rates
      • Devaluation is a reduction in the value of the local currency against other currencies
managed dirty float58
Managed Dirty Float?
  • Definitions
    • Dirty refers to the fact that central banks, as well as currency traders, buy and sell currency to influence exchange rates
foreign exchange market dynamics
Foreign Exchange Market Dynamics
  • Supply and Demand interaction
    • Country sells more goods/services than it buys
    • There is a greater demand for the currency
    • The currency will appreciate in value
purchasing power parity ppp the big mac index
Purchasing Power Parity (PPP) – The Big Mac Index
  • Is a certain currency over/under- valued compared to another?
  • Assumption is that the Big Mac in any country should equal the price of the Big Mac in the US after being converted to a dollar price
managing economic exposure
Managing Economic Exposure
  • Economic exposure refers to the impact of currency fluctuations on the present value of the company’s future cash flows
    • Transaction exposure is from sales/purchases
    • Real operating exposure arises when currency fluctuations, together with price changes, alter a company’s future revenues and costs
managing economic exposure63
Managing Economic Exposure
  • Numerous techniques and strategies have been developed to reduce exchange rate risk
    • Hedging involves balancing the risk of loss in one currency with a corresponding gain in another currency
    • Forward Contracts set the price of the exchange rate at some point in the future to eliminate some risk
looking ahead
Looking Ahead
  • Chapter 3 – The Global Trade Environment: Regional Market Characteristics and Preferential Trade Agreements
market capitalism
Market Capitalism
  • Individuals and firms allocate resources
  • Production resources are privately owned
  • Driven by consumers
  • Government should promote competition among firms and ensure consumer protection
index of economic freedom
Index of Economic Freedom
  • In practice, the index measures:
    • Size of Government: Expenditures, Taxes, and Enterprises
    • Legal Structure and Security of Property Rights
    • Access to Sound Money
    • Freedom to Trade Internationally
    • Regulation of Credit, Labor, and Business

Return

centrally planned socialism
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 on what is available
  • Government owns entire industries
  • Demand typically exceeds supply
  • Little reliance on product differentiation, advertising, pricing strategy

Return

centrally planned capitalism
Centrally-Planned Capitalism
  • Economic system in which command resource allocation is used extensively in an environment of private resource ownership
  • Examples:
    • Sweden
    • Japan

Return

market socialism
Market Socialism
  • Economic system in which market allocation policies are permitted within an overall environment of state ownership
  • Examples:
    • China
    • India

Return

low income countries
Low-Income Countries
  • GNP per capita of $785 or less
  • Characteristics
    • Limited industrialization
    • High percentage of population involved in farming
    • High birth rates
    • Low literacy rates
    • Heavy reliance on foreign aid
    • Political instability and unrest
  • Of these, only China and India are BEMs

Return

lower middle income countries
Lower-Middle-Income Countries
  • GNP per capita between $786 and $3,125
  • Sometimes called less-developed countries (LDCs)
  • Characteristics
    • Early stages of industrialization
    • Cheap labor markets
    • Factories supply items such as clothing, tires, building materials, and packaged foods
  • 3 BEMs: Poland, Turkey, Indonesia
turkey74
Turkey

Return

upper middle income countries
Upper-Middle-Income Countries
  • GNP per capita between $3,126 to $9,655
  • Characteristics
    • Rapidly industrializing
    • Rising wages
    • High rates of literacy and advanced education
    • Lower wage costs than advanced countries
  • Sometimes called newly industrializing economies (NIEs)
  • 3 BEMs: Argentina, Brazil, Mexico, South Africa

Return

high income countries
High-Income Countries
  • GNP per capita above $9,656
  • Sometimes referred to as post-industrial countries
  • Characteristics
    • Importance of service sector, information processing and exchange, and intellectual technology
    • Knowledge as key strategic resource
    • Orientation toward the future

Return

group of seven g 8
Group of Seven (G-8)
  • Leaders from these high income countries work to establish prosperity and ensure monetary stability

World Development Report 2006

Return

organization for economic cooperation and development
Organization for Economic Cooperation and Development
  • 30 nations each with market-allocation economic systems
  • Mission: to enable its members to achieve the highest sustainable economic growth and improve the economic and social well-being of their populations
  • www.oecd.org
the triad
The Triad
  • Dominant economic centers of the world
    • Japan
    • Western Europe
    • United States
  • Expanded Triad
    • Pacific Region
    • North America
    • European Union
slide86
APEC
  • Asia Pacific Economic Cooperation
  • Members
    • US, Japan, China, Australasia, Russia, …
  • Goal
    • Lose economic association, forum
economic integration in asia
Economic Integration in Asia
  • Asia-Pacific Economic Cooperation (APEC)
  • Association of Southeast Asian Nations (ASEAN)
  • East Asia Economic Group
  • South Asian Association for Regional Cooperation (SAARC)
economic integration in africa and the middle east
Economic Integration in Africa and the Middle East
  • Economic Community of West African States (ECOWAS)
  • Afro-Malagasy Economic Union
  • East Africa Customs Union
  • West African Economic Community
  • Maghreb Economic Community
  • Gulf Cooperation Council (GCC)