1. Global Marketing Management
Chapter 2 Global Economic
Environment
Warren J. Keegan

2. Overview The World Economy – An Overview Economic Systems
Stages of Market Development
Stages of Economic Development
Income and Purchasing Power Parity
The Location of Population
Marketing and Economic Development
Balance of Payments
Trade Patterns
Summary

3. Learning Objectives
Understand the main differences between economic systems found around the world
Learn ways of classifying countries by their market development
Understand consumption patterns in different countries
Know the main regional economic co-operation agreements

4. The World Economy - Overview
During the last 50 years:
Emergence of global markets
Integration of world economy
Capital movements are driving force
Production is “uncoupled” from employment
Macroeconomics of individual countries no longer control economic outcomes

5. Economic Systems Three types of economic systems:
Capitalist
Socialist
Mixed
Classification based on dominant method of resource allocation
Market allocation
Command allocation
Mixed system

6. Economic Systems – Market Allocation
Relies upon consumers to allocate resources
Role of state
Promote competition
Ensure consumer protection
Predominately market economies:
US, Western European Countries, Japan

7. Economic Systems – Command Allocation
State has broad powers to serve public interest
Decides which products to make
Decides how to make them
Elements of marketing mix are not used as strategic variables
Countries that relied upon command allocation systems for decades: China, former USSR, India

8. Economic Systems – Mixed Systems
In reality, no pure market or command allocation systems among the world’s economies
In OECD countries, the portion taxes ranges from 32% GDP in US to 64% in Sweden

9. Economic Systems
Index of Economic Freedom (Source: Heritage Foundation)
Free:
Hong Kong, Singapore, New Zealand, , Bahrain, Luxembourg, US,
Mostly Free
Canada, Chile, El Salvador, Taiwan
Mostly Unfree
Cambodia. Mexico, Slovak Rep., Slovenia, Swaziland
Repressed
North Korea, Iraq, Libya, Somalia, Cuba

10. Stages of Market Development
Countries/markets are at different stages of development
GNP per capita provides a useful way of grouping countries into 5 categories
Categories are a useful basis for:
Market segmentation
Target marketing

11. Country Income Segmentation
$9,656 High Income (Advanced Countries)
-Triad
-Others
+ $3,126 Upper Middle Income (NIC’s)
+ $ Lower Middle Income (DC’s)
< $ Lower Income (LDC’s)
Basket Cases (BC’s)

12. Global Income & Population 2001
GNP (billion)
GNP/ Capita
% GNP
Population (Millions)
% Pop.
World
$30,251
$4,931
100
6,134
High
$24,280
$24,693 80
983 16
Up-Mid
$2,111
$4,476 7
449
Low-Mid
$3,150
$1303 10
2,418 39
Low
$810
$355 3
2,284 37

13. Top 10 GNP (in millions) United States $8,259,358 Japan 4,427,104
Germany ,127,086
France 1,446,515
United Kingdom ,359,764
China 1,179,345
Italy 1,168,771
Brazil ,852
Canada ,158
Spain ,944

14. Stages of Market Development – High Income Countries
GNP per capita above $9,656
Norway at $38,070, US at $20,953
Post-Industrial Countries
Importance of service sector – more than 50% of GNP
Ascendancy of knowledge over capital

15. Stages of Market Development – Upper Middle Income Countries
GNP per capita between $3,126 and $9,656
Characteristics
Rising wages
High rates of literacy
Advanced education
Experience rapidly, export-driven economic growth
Become formidable competitors

16. Stages of Market Development – Lower Middle Income Countries
GNP per capita between $785 and $3,125 Characteristics
Early stages of industrialization
Expanding consumer markets
Major competitive advantage in the production of mature, standardized, labor-intensive products

17. Stages of Market Development – Low Income Countries
Income per capita less than $785
Characteristics
Limited industrialization
High birth rates
Low literacy rates
Heavy reliance on foreign aid
Political instability
Concentration in Africa, south of the Sahara

18. Stages of Market Development – Basket Cases
A country with economic, social & political problems that are so serious they make the country unattractive for investment and operations
Low-income, no-growth countries (E.g.. Ethiopia)
One-time growing & successful countries that have become divided by political struggles

19. Stages of Economic Development
Stages of market development based on GNP per capita correspond with the stages of economic development
Low & lower-middle-income countries = less developed countries (LDCs)
Upper- middle-income countries = industrializing countries
High-income countries = advanced, industrialized & postindustrial

20. Income and Purchasing Power (1)
Single most important indicator of market potential
Purchasing Power Parities
Comparison of goods & services that can be bought with local currency in different countries
Gross National Product (GNP)
Sum of the money values of all final goods & services produced during a year

21. Income and Purchasing Power (2)
Top 10 Nations ranked by GNP/Capita (2000) Luxembourg Japan
Norway Denmark
Singapore United States
Switzerland Hong Kong
Kuwait Austria

22. Income and Purchasing Power (3)
Top 10 Nations ranked by GNP/Capita adjusted for Purchasing Power (PPP)
Luxembourg Switzerland
United States Denmark
Singapore Japan
Norway Belgium
Hong Kong Austria

23. The Location of Population
Country Population GNP/Capita % World (thousands) (thousands) GNP
China 1,268,
India ,015,
United States , ,
Indonesia , ,
Brazil , ,

24. Marketing & Economic Development
Does marketing play an important role in the economic development of a country?
Is marketing only relevant to conditions that apply in affluent, industrialized countries?
The marketing process of focusing an organization’s resources on environmental opportunities is a process of universal relevance

25. Balance of Payments
A record of all economic transactions between residents of a country & the rest of the world
Capital Account records
Long-term direct investment, Portfolio investment, Other short & long-term capital flows
Current Account records
Trade in merchandise & service, Private gifts, Public aid transactions between countries

26. Trade Patterns (1)
World merchandise trade has grown faster than world production during the last 50 years
Top 5 exporting countries Top 5 importing countries
United States United States
Germany Germany
Japan Japan
China United Kingdom
France France

27. Trade Patterns (2) Services Trade
The fastest- growing sector of world trade
In 1994, U.S. service exports totalled $195 Billion

28. Summary
Economic environment is major determinant of global market potential & opportunity
World economies can be categorized into market allocation systems, command allocation systems, & mixed systems
For many products, most important indicator of market potential is income