Chapter 2 The Global Economic Environment 2 -1
Review of Chapter 1 What is Global Marketing? How is it different from regular marketing? 2
Reasons for Global Marketing Growth – Access to new markets – Access to resources Survival – Against competitors with lower costs (due to increased access to resources) 3
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 4
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. 5
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 6
Management Orientations Ethnocentric: Home country is Superior, sees Similarities 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 Polycentric: Each host country Is Unique, sees differences In foreign countries Geocentric: World view, sees Similarities and Differences in home And host countries 7
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 8
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 9
Turkish Trading Partners (2005) Germany 13%, UK 8. 2%, Italy 7%, US 6. 9%, France 5. 1%, Spain 4. 2% 11
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Gross National Product TURKEY Total Year Population Million $ Person % $ % 1995 61, 644 170, 081 28. 6 2, 759 26. 3 1996 62, 697 183, 601 7. 9 2, 928 6. 1 1997 62, 480 192, 383 4. 8 3, 079 5. 2 1998 63, 459 206, 552 7. 4 3, 255 5. 7 1999 64, 345 185, 267 -10. 3 2, 879 -11. 6 2000 67, 461 200, 002 8 2, 965 3 2001 68, 618 145, 693 -27. 2 2, 123 -28. 4 2002 69, 620 180, 828 24. 1 2, 597 22. 3 2003 70, 717 239, 235 32. 3 3, 383 30. 2 2004 71, 782 299, 475 25. 2 4, 172 23. 3 2005 72, 070 360, 876 20. 5 5, 008 20 15
Gross National Product TURKEY 16
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Rank — Country World 1 United States GDP (millions of USD) 44, 384, 871 12, 455, 068 2 Japan 4, 505, 912 3 Germany 2, 781, 900 4 People's Republic of China 2, 228, 862 5 United Kingdom 2, 192, 553 6 France 2, 110, 185 Source: World Bank 7 Italy 1, 723, 044 (2006) 8 Spain 1, 123, 691 11 South Korea 787, 624 12 India 785, 468 14 Russia 763, 720 19 Turkey 363, 300 28 Greece 213, 698 30 Iran 196, 343 73 Bulgaria 26, 648 74 Syrian Arab Republic 26, 320 87 Cyprus 15, 418 95 Iraq 12, 602 18
Gross Domestic Income (Nominal) 19
Rank Country GDP (PPP) $ per capita 1 Luxembourg 69, 800 2 Norway 42, 364 3 United States 41, 399 6 Denmark 34, 740 7 Canada 34, 273 8 Hong Kong 33, 479 9 Austria 33, 432 10 Switzerland 32, 571 17 Germany 30, 579 21 Italy 28, 534 30 Greece 22, 392 33 Cyprus 21, 177 62 Russia 11, 041 66 Bulgaria 9, 223 74 Iran 7, 980 75 Turkey 7, 950 107 Azerbaijan 4, 601 118 Syria 3, 847 20
Purchasing Power Parity (per capita) 21
Turkey 22
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%. 23
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. 24
Human Development Index 2008 update 25
U. S. Multinational in Europe - 1960’s 2 -3 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. What Happened? J. S. Servan Schreiber: Le Defi American, 1967 26
The Nationality of the World’s 100 Largest Industrial Corporations (by country of origin) 1963 1979 1984 1990 1993 1995 1996 2000 United States 2 -4 Germany Britain France Japan Italy Netherlands-United Kingdom Netherlands Switzerland Argentina Belgium Brazil Canada India Kuwait Mexico Venezuela South Korea Sweden South Africa Spain Turkey China 67 47 33 32 24 36 13 7 4 3 2 2 1 1 -------- 13 7 11 7 3 2 3 1 -1 1 2 --1 1 ------- 8 5 5 12 3 2 1 1 -3 1 1 4 1 1 ---- 12 6 10 18 4 2 1 3 --1 ---1 1 2 2 1 2 --- 14 4 6 23 4 2 1 3 --1 ---1 1 4 1 -2 1 -- 14 1 12 37 3 2 2 3 ----2 ------ 13 29 4 2 2 5 ------1 1 4 ------ 12 5 11 22 3 -5 3 -1 ------2 27
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 28
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 reevaluate business models 29
Economic Systems 4 main types of economic systems – Market Capitalism – Centrally planned socialism – Centrally planned capitalism – Market socialism 30
Economic Systems Resource Allocation Market Private Resource Ownership State Command Market Capitalism Centrally Planned Capitalism Market Socialism Centrally Planned Socialism 31
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 32
Economic Freedom 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 33
Buying Boom for Asia, 1995 -2000 What the added middle class will buy (In million) Between 1993 and 1995 2000 Bedrooms 32 116 Living Rooms 16 58 Kitchens 16 58 Bathrooms 32 116 1, 200 16 58 Televisions 24 87 Telephones 24 87 Cars 16 58 Millions of households approaching $18, 000 per year buying power 4, 350 Large appliances 73. 3 Living space (sq. m. ) Indexed to Singapore prices 32. 5 14. 4 1991 1995 2000 SOURCE: Bill Saporito, “Where the Global Action Is. ” Fortune, Autumn-Winter 1993, p. 64. 34
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. 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 35
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The Price of Protectionism Industry Textiles and apparel Total Costs to Consumers (in $ millions) Number of Jobs Saved Cost per Job Saved $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 Mc. Fadden, “Protectionism Can’t Protect Jobs, ” Fortune, May 11, 1987, pp. 125. 37
Big Emerging Markets China India Indonesia South Korea Brazil Mexico Argentina South Africa Poland Turkey ██ Emerging markets██ Developed markets 38
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. 39
Stages of Market Development 40
Stages of Market Development World Bank has defined four categories of development – High-income countries – Upper-middle income countries – Low-income countries Based upon Gross National Product (GNP) 41
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 42
Turkey Return 43
Influencing the World Economy Group of Seven (G-7) Organization for Economic Cooperation and Development The Triad 44
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 45
N-11 The Next Eleven (or N 11) is a short list of countries named by Goldman Sachs investment bank on 1 December 2005 as having promising outlooks for investment and future growth. 46
N-11 47
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. 48
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. 49
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 50
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) 51
Movie Clip from India 52
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 53
Balance of Payments The balance of payments (or BOP) measures the payments that flow between any individual country and all other countries. 55
Balance of Payments (2005) Blue = countries in current account surplus; Red = countries in current account deficit, 2005 56
US Trade Balance 57
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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 61
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 62
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 63
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 64
Big Mac Index for Selected Countries 65
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 66
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 67
Looking Ahead Chapter 3 – The Global Trade Environment: Regional Market Characteristics and Preferential Trade Agreements 68
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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 70
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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 72
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 73
Centrally-Planned Capitalism Economic system in which command resource allocation is used extensively in an environment of private resource ownership Examples: – Sweden – Japan Return 74
Market Socialism Economic system in which market allocation policies are permitted within an overall environment of state ownership Examples: – China – India Return 75
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 76
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 77
Turkey Return 78
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 79
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 80
Group of Seven (G-8) Leaders from these high income countries work to establish prosperity and ensure monetary stability World Development Report 2006 Return 81
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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 wellbeing of their populations www. oecd. org 83
OECD 84
OECD Members (2006) Return 85
The Triad Dominant economic centers of the world – Japan – Western Europe – United States Expanded Triad – Pacific Region – North America – European Union 86
EU 87
EU Statistics Return 88
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APEC Asia Pacific Economic Cooperation Members – US, Japan, China, Australasia, Russia, … Goal – Lose economic association, forum 90
APEC 91
Economic Integration in Asia-Pacific Economic Cooperation (APEC) Association of Southeast Asian Nations (ASEAN) East Asia Economic Group South Asian Association for Regional Cooperation (SAARC) 92
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) 93
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