1. Multilateral economic agreements
DRIVING FORCES AFFECTING GLOBAL INTEGRATION & GLOBAL MARKETGING
Multilateral economic agreements
Converging market needs & the information revolution
DRIVING FORCES
Regional agreements: NAFTA, EU expansion and single currency. WTO (1994)
Market needs and wants and IT: There are cultural universals as well as differences. Common elements in human nature provide the opportunity to create and serve global markets. For example, soft drinks companies must recognize that product adaptation is not always necessary and that competitors may be serving global customers. The information revolution that Thomas Friedman calls the democratization of information is one reason for the trend to convergence. CNN and MTV allow people in remote areas to compare their lifestyles to others. Advertising overlapping national boundaries such as in Asia or Europe and the mobility of consumers in these markets has allowed for pan-regional positioning. The Internet is perhaps the strongest force that allows people everywhere to buy and sell.
Transportation and communication: Jets allow around the world travel in less than 48 hours. 1970: 75 million international passengers. 2003: 540 million. Airlines sell one another’s seats thanks to modern technology. International phone calls are inexpensive and there are many other ways to communicate including fax, , video conferencing, wi-fi, and broadband Internet. Transportation costs have fallen. Due to specially designed ships, the cost of shipping autos from Japan to the United States is less than the cost to ship from Detroit to either U.S. coast. Intermodal transportation uses 20- to 40-foot containers that may be transferred from trucks to railroad cars to ships.
Product Development Costs: New pharmaceutical cost in 1976 = $ 76 million; today = $400 million and up to 14 years to get a drug approved. Pharmaceutical companies go global to spread the costs. However, only 7 countries account for 75 percent of sales.
Transportation & communication improvements
Product development costs
p. 56

2. DRIVING FORCES AFFECTING GLOBAL INTEGRATION & GLOBAL MARKETGING
Quality
World economic trends
DRIVING FORCES
Regional agreements: NAFTA, EU expansion and single currency. WTO (1994)
Market needs and wants and IT: There are cultural universals as well as differences. Common elements in human nature provide the opportunity to create and serve global markets. For example, soft drinks companies must recognize that product adaptation is not always necessary and that competitors may be serving global customers. The information revolution that Thomas Friedman calls the democratization of information is one reason for the trend to convergence. CNN and MTV allow people in remote areas to compare their lifestyles to others. Advertising overlapping national boundaries such as in Asia or Europe and the mobility of consumers in these markets has allowed for pan-regional positioning. The Internet is perhaps the strongest force that allows people everywhere to buy and sell.
Transportation and communication: Jets allow around the world travel in less than 48 hours. 1970: 75 million international passengers. 2003: 540 million. Airlines sell one another’s seats thanks to modern technology. International phone calls are inexpensive and there are many other ways to communicate including fax, , video conferencing, wi-fi, and broadband Internet. Transportation costs have fallen. Due to specially designed ships, the cost of shipping autos from Japan to the United States is less than the cost to ship from Detroit to either U.S. coast. Intermodal transportation uses 20- to 40-foot containers that may be transferred from trucks to railroad cars to ships.
Product Development Costs: New pharmaceutical cost in 1976 = $ 76 million; today = $400 million and up to 14 years to get a drug approved. Pharmaceutical companies go global to spread the costs. However, only 7 countries account for 75 percent of sales.
Leverage
p. 59

3. Multilateral Agreements NAFTA
The North American Free Trade Agreement or NAFTA is an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America.
The agreement came into force on January 1, 1994.
In terms of combined GDP of its members, as of 2010, the trade bloc is the largest in the world.

4. ASEAN- Other Countries
The Association of Southeast Asian Nations, commonly abbreviated ASEAN is a geo-political and economic organization of ten countries located in Southeast Asia, which was formed on 8 August 1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand.
Since then, membership has expanded to include Brunei, Burma (Myanmar), Cambodia, Laos, and Vietnam.
Its aims include the acceleration of economic growth, social progress, cultural development among its members, the protection of the peace and stability of the region, and to provide opportunities for member countries to discuss differences peacefully.
ASEAN- Other Countries
ASEAN has concluded free trade agreements with PR China, Korea, Japan, Australia, New Zealand and most recently India.
The agreement with People's Republic of China created the ASEAN–China Free Trade Area (ACFTA), which went into full effect on January 1, In addition, ASEAN is currently negotiating a free trade agreement with the European Union.

5. Converging market needs & the information revolution

6. Information revolution

7. Transportation & Communication improvements

8. Product development costs
Cost of developing a new drug in $54M
Cost of developing a new drug in 2009-$400 Million
Such huge investments can be recovered only in global market place.
Refer Table 1-10 on Page 58

9. Quality
Global marketing strategies generate greater opportunities and greater revenue which intern support design and manufacturing quality.

10. World Economic Trends

11. Leverage
Global companies possess the unique opportunities to develop leverage.
It means the type of advantage that a company enjoys by virtue of the fact that it has experience in more than one country.
Experience transfer
Scale of Economies
Resource Allocation
Global strategy

12. Leverage: Experience Transfers
A global company can leverage its experience in any market in the world. It can draw on management practices, strategies, products, advertising appeals, or sales or promotional ideas that have been tested in actual markets and apply them in other comparable markets.
For example, Asea Brown Boveri (ABB), a company with 1,300 operating subsidiaries in 140 countries, has considerable experience with a well-tested management model that it transfers across national boundaries. The Zurich-based company knows that a company's headquarters can be run with a lean staff. When ABB acquired a Finnish company, it reduced the headquarters staff from 880 to 25 between 1986 and Headquarters staff at a German unit was reduced from 1,600 to 100 between 1988 and After acquiring Combustion Engineering (a U.S. company producing power plant boilers), ABB knew from experience that the headquarters staff of 800 could be drastically reduced, in spite of the fact that Combustion Engineering had a justification for every one of the headquarters staff positions.
ABB subsidiaries in 140 countries.
Very famous for running the operations with the minimum number of staff

13. Leverage: Scale of Economies
The global company can take advantage of its greater manufacturing volume to obtain traditional scale advantages within a single factory.
Also, finished products can be produced by combining components manufactured in scale-efficient plants in different countries.
The larger scale of the global company also creates opportunities to improve corporate staff competence and quality.

14. Leverage : Resource Allocation
A major strength of the global company is its ability to scan the entire world to identify people, money, and raw materials that will enable it to compete most effectively in world markets. Global companies utilizes the resources where there is the greatest opportunity to serve a need at a profit

15. Leverage Global strategy.
The global company's greatest single advantage can be its global strategy.

16. RESTRAINING FORCES AFFECTING GLOBAL INTEGRATION & GLOBAL MARKETGING
Management myopia & Organizational culture
Opposition to globalization
Management myopia and organizational culture: Ethnocentric companies will not expand geographically. Managers tend to dictate when they should create strong local teams that they can rely upon for market information. Know-it-all local teams won’t listen to management and all-knowing managers won’t listen to local experts. Successful global companies have learned to integrate global vision and perspective with local market initiative and input.
National controls: Every country tries to protect its home industries and services through tariff and non-tariff controls. Thanks to organizations like GATT, WTO, NAFTA, EU, and other economic agreements, tariffs have been largely removed in high-income countries. Non-tariff barriers to trade include “Buy Local” campaigns, food safety rules, and other bureaucratic obstacles.
Opposition to Globalization: Globophobia is the term used to describe an attitude of hostility toward trade agreements, global brands, or company policies that appear to result in hardship for some individuals or countries while benefiting others. Opponents to globalization include college or university students, NGOs, and labor unions. Some Americans believe that globalization has sent American jobs—both blue- and white-collar—overseas and also depressed wages at home. In developing countries, many believe that free trade agreements benefit the world’s most advanced countries. An unemployed miner in Bolivia said, “Globalization is just another name for submission and domination. We’ve had to live with that here for 500 years and now we want to be our own masters.”
National controls – (to protect local industries)
p. 62

17. Management myopia
Management ignores (will not see) the opportunities to peruse global marketing.
Global marketing does not work without a strong local team that can provide information about the local market conditions.

18. Summary
Global marketing is the process of focusing resources on global marketing opportunities
Goal is to create customer value & competitive advantage by maintaining focus
Four classifications of management orientation: ethnocentric, polycentric, regiocentric, geocentric
Global marketing importance is shaped by a variety of driving & restraining forces

19. Looking Ahead to Chapter 2
The global economic environment

20. The Global Economic Environment
Chapter 2

21. Introduction This chapter includes An overview of the world economy
A survey of economic system types
The stages of market development
The balance of payments

22. The World Economy—An Overview
In the early twentieth century economic integration was at 10%; today it is 50%
EU and NAFTA are very integrated
Global competitors have displaced or absorbed local ones
Fifty years ago, the auto industry was very different. European automakers such as Renault, Citroen, Peugeot, Morris, Volvo, and others produced vehicles radically different from those of American makers such as Chevrolet, Ford, or Plymouth, or Japanese autos made by Toyota or Nissan. Today, manufacturers make autos for home markets but are increasing global companies with global products.

23. 5 important changes in the World Economy
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
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
The first change is the increased volume of capital movements. The dollar value of world trade in merchandise is running at roughly $11 trillion per year. However, the London foreign exchange market turns over $450 billion each working day; overall, foreign exchange transactions are running at approximately $1.5 trillion per day worldwide—far surpassing the dollar volume of world trade in goods and services.
The second change is the relationship between manufacturing and productivity. Manufacturing is not in decline but employment in manufacturing is declining due to gains in productivity. In 1971, 26 percent of U.S. workers were employed in manufacturing; 13 percent in Manufacturing share of GDP declined from percent in 1989 to 16.1 percent in 1999.
The third change is the emergence of the world economy as the dominant economic unit. The real secret of the economic success of Japan and Germany is that business leaders and policymakers focus on their countries’ competitive positions in world markets. This change has brought two questions to the fore: How does the global economy work, and who is in charge? Unfortunately, the answers to these questions are not clear cut.

24. Economic Systems Resource Allocation Resource Ownership Market Command
Private
Resource
Ownership
State
Centrally planned capitalism
Market capitalism
Market socialism
Centrally planned socialism

25. 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
Eg: United States
Market capitalism is practiced most around the world, most notably in Western Europe and North America. All market-oriented economies do not function in an identical manner. The United States is characterized by its competitive “free-for-all” and decentralized initiative. Japan is sometimes called “Japan, Inc.” because it has a tightly run, highly regulated economic system that is also market oriented.

26. 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
Government owns entire industries and controls distribution
Demand typically exceeds supply
Eg: North Korea, Venezuela etc.
Marxism is a vanquished economic system. For decades China, the Former Soviet Union, and India used this economic system. All of these countries now have economic reforms that have some degree of market allocation and private ownership.

27. Centrally Planned Capitalism
Economic system in which command resource allocation is used extensively in an environment of private resource ownership
Examples
Sweden
Japan
INDUSTRY SECTOR
STATE OWNERSHIP
Telecom
45%
Airline
21%
Banking
20%
Alcohol
100%
In Sweden, where two-thirds of all expenditures are controlled by the government, resource allocation is more “command” oriented than “market” oriented. Sweden’s “welfare state” has a hybrid system that has elements of both centrally planned socialism and capitalism.
China’s Guangdong Province operates within a market system. China’s private sector accounts for 75 percent of total national output.
Cuba is one of the last countries to use command allocation approach.

28. 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
The Washington D.C. Heritage Foundation, a conservative think tank, ranks countries by the degree of economic freedom they support. There is a high correlation between the degree of economic freedom and the extent to which a nation’s mixed economy is heavily market oriented. The rankings’ validity has been criticized. The authoritarian state capitalism of Singapore deprives the nation’s citizens of free speech, a free press, and free assembly. In 1992, the government banned the import, manufacture, and sale of chewing gum because discarded gum made a mess on public property. Even though gum is now for sale in pharmacies, consumers must register their names and addresses before making a purchase. Singapore’s citizens are comfortably provided for by a government that administers paranoid control over press and politics, and they are well housed and fed, but they are not free. This example shows that some aspects of “free economies” bear little more than a passing resemblance to command-style economic systems.

29. Economic Freedom Free Repressed Hong Kong Cuba Singapore Belarus
Ireland
Luxembourg
Iceland/U.K.
Estonia
Denmark
Australia/New Zealand/United States
Repressed
Cuba
Belarus
Libya/Venezuela
Zimbabwe
Burma
Iran
North Korea
The website for The Heritage Foundation is

30. 13 Stages of Economic Development (p. 80-93) Brazil Russia India China
BIG EMERGING MARKETS (BEMs)
China
India
Indonesia
South Korea
Brazil
Mexico
Argentina
South Africa
Poland
Turkey
B R I C
Brazil
Russia
India
China

31. BRIC
Since the four BRIC countries are developing rapidly, by 2050 their combined economies could eclipse the combined economies of the current richest countries of the world.
These four countries, combined, currently account for more than a quarter of the world's land area and more than 40% of the world's population.

32. WORLD’S TOP ECONOMIES

33. Low-Income Countries GNP per capita of $825 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
Concentrated in Sub-Saharan Africa
India is the only BRIC country
Includes 40 percent of the world’s population. LICs represent limited markets for products with some exceptions. The Bangladesh garment industry shipped $2.4 billion in goods to the United States in GNP is about $380 and garment workers, mostly women, made about $35 a month. The country received preferential treatment under the Multifiber Arrangement trade agreement that expired in Some expect this will lead to a shakedown in the garment industry and cause unemployment and social and political unrest.
Some low-income countries have such serious economic, social, and political problems that they represent extremely limited opportunities. Burundi, Rwanda, and Haiti are examples.
FSU (former Soviet Union) states present a interesting situation: Income is declining and there is economic hardship. These countries present risk/reward trade-offs. Table 2-3 shows that Tajikistan and Belarus are considered “repressed” in terms of economic freedom.
India

34. Lower-Middle-Income Countries
GNI per capita: $826 to $3,255
Characteristics
Rapidly expanding consumer markets
Cheap labor
Mature, standardized, labor-intensive industries like textiles and toys
BRIC nations are China and Brazil
China: No democratic reforms. Trading partners are concerned about human rights and intellectual property protection. State leaders must deal with a large bureaucratic system while reforming state enterprises. GM, Ford, Honda, Volkswagon, Motorola, P&G, Avon, Siemens AG, and McDonald’s are investing there.
Brazil: Largest country in South America in terms of its economy, population, and geography. It has the richest natural resources in the hemisphere. Hyperinflation is under control and it has liberalized trade policies. Companies doing business there are Whirlpool, Electrolux, Raytheon, Fiat, and Ford.
Brazil is a study in contrasts. Horse-drawn carts are common in some parts. Grocery companies use logistics software to route trucks. Many retailers use sophisticated computer systems to maintain control in a volatile financial environment. Former French president Jacques Chirac said, “Geographically, Brazil is part of America. But it’s European because of its culture and global because of its interests.”

35. Upper-Middle-Income Countries
GNP per capita: $3,256 to $10,065
Characteristics
Rapidly industrializing, less agricultural employment
Increasing urbanization
Rising wages
High literacy rates and advanced education
Lower wage costs than advanced countries
Also called newly industrializing economies (NIEs)
Examples: Malaysia, Chile, Venezuela, Hungary, Ecuador
In Hungary and other NIEs, many manufacturing companies have received ISO-9000 certification for documenting compliance with quality standards.

36. High-Income Countries
GNI per capita: $10,066 or more
Also know as advanced, developed, industrialized, or postindustrial countries
Characteristics
Sustained economic growth through disciplined innovation
Service sector is more than 50% of GNI
Product and market opportunities in a postindustrial society are more heavily dependent on new products and innovations than in industrial societies. Ownership levels of basic products are extremely high in most households. When it is difficult to expand market share, companies must bring new products to market or create new markets for products.

37. High-Income Countries
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

38. G-8, the Group of Eight
Goal of global economic stability and prosperity
United States
Japan
Germany
France
Britain
Canada
Italy
Russia (1998)
As of 2007, the U.S. State Department website with G-8 information is
G-7 began in 1975 and Russia joined in The EU is also represented at all meetings.
The leader of the host country is the president of the G-8. The group meets every summer. The presidency of the G8, and responsibility for hosting all G-8 meetings, rotates each year, with the order of G-8 rresidencies as follows:
2004 United States 2005 United Kingdom 2006 Russia 2007 Germany 2008 Japan 2009 Italy 2010 Canada 2011 France 2012 United States
Photo: Top Row (l-r): Otto Schily (Germany), Brigitte Zypries (Germany), Dominique de Villepin (France), Tom Ridge (United States), John Ashcroft (United States), Rashid Gumarovich Nurgaliev (Russia), Vladimir Vasilyevich Ustinov (Russia), Akio Harada (Japan), Iwao Uruma (Japan). Bottom Row: Dominique Perben (France), Hazel Blears (UK), Roberto Castelli (Italy), Giuseppe Pisanu (Italy), Irwin Cotler (Canada), Paul Kennedy (Canada), Antonio Vitorino (EU).
2007 G-8 leaders in Germany

39. Assignment-2
Study about the Association of South East Asian Nations (ASEAN) and its marketing issues and opportunities.
Submit the assignment in the class and one group shall present the topic in the class.

40. OECD, the Organization for Economic Cooperation and Development
30 nations
Post–World War II European origin
Canada, United States (1961), Japan (1964)
Promotes economic growth and social well-being
Focuses on world trade, global issues, labor market deregulation

41. The Triad United States, Western Europe, and Japan
Represents 75% of world income
Expanded triad includes all of North America and the Pacific Rim and most of Eastern Europe
Global companies should be equally strong in each part
The ascendancy of the global economy has been noted by many observers in recent years. One of the most astute is Kenichi Ohmae, former chairman of McKinsey & Company Japan. His 1985 book Triad Power represented one of the first attempts to develop a coherent conceptualization of the new emerging order. Ohmae argued that successful global companies had to be equally strong in Japan, Western Europe, and the United States. These three regions, which Ohmae collectively called the Triad, represented the dominant economic centers of the world. Today, roughly 75 percent of world income as measured by GNP is located in the Triad.
Coca-Cola is a example of a company with a balanced revenue stream. Revenue: 25 percent from Asia; 25 percent from Europe, Eurasia, and Middle East; 40 percent from North America

42. Product Saturation Levels
The percentage of potential buyers or households who own a product
India: 20% of people have telephones
Autos: 1 per 20,000 Chinese; 21 per 100 Poles; 49 per 100 EU citizens
Computers: 1 PC per 6,000 Chinese; 11 PCs per Poles; 34 PCs per EU citizen
Cars: 8 out of 1000 Indians while 188 out of 1000 Russians and 565 out of 1000 Germans
The stages of economic development can serve as a guide to marketers in evaluating product saturation levels. In low per-capita income countries, levels are likely to be low.