Republic of the Philippines

BULACAN AGRICULTURAL STATE COLLEGE

Pinaod, San Ildefonso, Bulacan

WRITTEN REPORT
In
AgBus 225: International Marketing

Chapter 2
The Economic Environment
Chapter 3
Trade Policy and Institutions

Submitted By:
Kathyrine De Guzman
Jerome De Jesus
James Dela Cruz
Clariza Francisco
Wilma Garcia
Jennelyn B. Mangunay
Kristine Palomo

Submitted To:
Mrs. Aisanne Marie S. Mcnatt
 Chapter 2: The Economic Environment
2.1 THE INTERNATIONAL MARKETPLACE
AND NOW FOR THE NEXT ONE BILLION CONSUMERS
- During the first fifty years of the info-tech era, more than one billion people have come to
use computers, the vast majority in the developed markets of Europe, North America, and
Australasia. Those markets have become increasingly saturated and do not provide the
needed growth. The next billion consumers have to be found in the emerging market of the
21st century: China, India , Russia, South Africa, and Brazil.
The challenges of succeeding in the emerging markets are forcing the established global players
to come up with innovative new approaches. Areas in which fundamental rethinking is required
include the following:
1.Design- solution have to simpler and more durable. TVS electronics, an Indian printer
manufacturer, is producing devices for India’s 1.2 million small shops.
2.Innovation- marketers have to innovate for the peculiarities of emerging markets.
3.Business Development- old strategies may have to adjusted.
4. Competition- companies such as Cisco, Dell, and Microsoft dominate global markets.
5.Pricing-pressure on prices can lead to innovate solutions in financing.

The assessment of a foreign market environment should start with the evaluation of economic
variables relating to the size and nature of the markets. Because of the large number of
worthwhile alternatives initial screening of markets should be done efficiently yet effectively
enough with the wide array of economic criteria, to establish a preliminary estimate of market
potential. One of the most basic characterizations of the world economy is provided in Exhibit
2.1 which incorporates many of the economic variables. Pertinent to marketers.
  The group of Five listed in Exhibit 2.1 as the United States, Britain, France Germany and Japan
consists of the major industrialized countries of the world. This group is something expanded to
the group up Seven by adding (Italy and Canada) and to the group of Ten by adding (Sweden, the
Netherlands and the Belgium). It may also be expanded encompass the members of the
Organization for Economic Cooperation and Development, OECD. (which consists 30 countries:
Western Europe, the United States, Australia, Canada, Czech Republic, Hungary, Japan, Mexico,
New Zealand, Poland, Slovakia, South Korea, and and turkey and Turkey).
 Important among the middle-income developing countries are the newly industrialized countries
(NICs), which includes Singapore, Taiwan, Korea Hong Kong, Brazil, and Mexico.( some
proposed adding Malaysia and the Philippines to the list as well.
 The major oil- exporting countries, in particular the 11 members of the Organization of Petroleum
Exporting Countries (OPEC) and countries such as Russia, are dependent on the price of oil for
world market participation.
 Many of the emerging economies will depend on the success of their industrialization of efforts in
the years to come, even in the case of resource- rich countries that may find commodity prices
being driven down by humanmade substitutes.
 In less- developed countries, depth problems and falling commodity prices make Market
development difficult.

MARKET CHARACTERISTICS

The main dimensions of a market can be captured by considering variables such as those relating to
the population and its various characteristics, infrastructure, geographical features of the environment,
and foreign involvement in the economy.

o POPULATION- the number of people in a particular market provides one of the most basic
indicators of market size and is, in itself, indicative of the potential demand for certain staple
items that have universal appeal and are generally affordable.
o INCOME- markets require not only people but also purchasing power, which is a function of
income, savings, and credit availability. world market can be divided into four consumers
based on the measure of income
o 1. consists of 100 million consumers from around the world.
o 2. consists of the lower-income segments
o 3.includes the rising middle-class consumers in emerging markets.
o 4. home to the average consumer in developing markets.

The international marketer can use the following classification as a plan use.

o 1. very low family incomes

o 2. very low, very high family incomes

o 3.low,medium,high family incomes

 o 4.most medium family incomes
Although the international income provide a general indication of a market's potential, ther
suffer from various distortions available from the secondary sources are often in U.S dollars.
the per capital income may not trur reflection of purchasing power of the currencies involved
are distorbed in some way.

CONSUMPTION PATTERNS

Depending on the sophistication of a country’s data collection systems, economic data on consumption
patterns can be obtained and analyzed. The share of income spent on necessities will provide an
indication of the market’s development level as well as an approximation of how much money the
consumer has left for other purchases. Engel’s laws provide some generalizations about consumers
spending patterns and are useful generalizations when precise data are not available. They state that as a
family’s income increases, the percentage spent on food will decrease, the percentage spent on housing
and household operations will be roughly constant, and the amount saved or spent on other purchases will
increase.

In large markets, such as China, India, and the United States, marketers need to exercise care in not
assuming uniformity across regions. In China, for example, marked differences exist between geographic
markets and consumers in urban and rural markets.

INFRASTRUCTURE

The availability and quality of an infrastructure is critically important in evaluating marketing operations
abroad. Each international marketer will rely heavily on services provided by the local market for
transportation, communication, and energy as well as on organizations participating in the facilitating
functions of marketing. Marketing communications, distributing, information, and financing. Indicators
such ad steel consumption, cement production, and electricity production relate to the overall
industrialization of the market and can be used effectively by suppliers of industrial products and services.

The existence and expansion of basic infrastructure has contributed significantly to increased
agricultural output in Asia and Latin America. The Philippines has allocated 5 percent of agricultural
development funds to rural electrification programs. On a similar level, basic roads are essential to
moving agricultural products.

Transportation networks by land, rail, waterway, or air are essential for physical distribution. An analysis
of rail traffic by freight tons per kilometer offers a possible way to begin an investigation of transportation
capabilities; however, these figures may not always indicate the true state of the system.
Communication is as important as transportation. The ability of a firm to communicate with entities both
outside and within the market can be estimated by using indicators of the communications infrastructure:
telephones, computers, broadcast media, and print media in use.

2.2 THE INTERNATIONAL MARKETPLACE

The International Pay-Per - Click Market

 Pay per click (PPC) is an internet advertising model used on search engines , advertising network
s , and content website - such as blogs - where advertisers only pay when a user actually clicks on
an advertisement to visit the advertiser's website .

 China , In china , e-commerce and online payment platforms are well developed and have a larg
e number of users.
 Japan, has one of the highest internet penetrations.
 Russia, the russian internet market has been expiriencing rapid development w/ its audience gro
wing 25 percent during the past year.

MARKETING CONSIDERATIONS FOR INTERNATIONAL PPC

 In targeting international markets , it is prudent to use a company located in the specific geograph
ic area one is interested in.
 A company w/ "boots on the ground" will have knowledge in language , culture , and marketing j
argon and will be able to localize content ,as opposed to merely translating it from one language t
o another.

IMPACT OF THE ECONOMIC ENVIRONMENT ON SOCIAL DEVELOPMENT

 Many of the characteristics discussed are important beyond numbers. Economic success comes w
/ a price tag.
 Because of the close relationship between economic and social development , many of the figures
can be used as social indicators as well.
 PQLI ,a composite measure of the level of welfare in a country.
Three components of PQLI
 Life expectancy
 Infant mortality
 Adult literacy rates

REGIONAL ECONOMIC INTEGRATION

  Economic integration has been one of the main economic developments affecting world markets s
ince world war ll .
 Country have wanted to engage in economic cooperation to use their respective resources more ef
fectively and to provide larger markets for member -country producers

LEVELS OF ECONOMIC INTEGRATION

Free Trade Area

 The free trade area is the least restrictive and loosest form of economic integration among nat
ions .
 In a free trade area , all barriers to trade among member countries are removed.

Customs Union

The customs union is one step further along the spectrum of economic integration.
As in the free trade area, members of the customs union dismantle barriers to trade in goods
and services among members.

Common Market

 The common market amounts to a customs union covering the exchange of good and services , th
e prohibition of duties in export and imports between members , and the adoption of a common e
xternal tariff w/ respect to nonmembers.

Economic Union

 The creation of a true economic union requires integration of economic policies in addition to
the free movements of good ,services and factors of production across borders.

European Integration

 The most important implication of the freedom of movement for products,services,people, and ca
pital within the EU is the economic growth that is expected to result.
 Several specific sources of increased growth have been identified:
 First, there will be gains from eliminating the transaction cost associated w/ border patrols ,cust
oms procedures, and so forth.
 Second, economic growth will be spurred by the economies of scale that will be achieved when
production facilities become more concentrated.
 Third, there will be gains from more intense competition among european companies.
NORTH AMERICAN INTEGRATION

 Although the EU is undoubtedly the most succesful and best known integrative effort , North Am
erican integration efforts , although only a few years old , have gained momentum and attention.

2.3 THE INTERNATIONAL MARKETPLACE

NAFTA Reshaping Retail Markets
Wal-Mart saw the promise of the Mexican market in1991 when it stepped outside of the United States for
the first time by launching Sam's Clubs in 50-50 partnership with Cifra, Mexico's largest retailer at that
time.
After NAFTA took effect in 1994, tariffs tumbled, unleashing pent-up demand in Mexico for U.S made
goods. The trade treaty also helped eliminate some of the transportation headaches and government red
tape that had kept Wal-Mart from fully realizing its competitive advantage. NAFTA resulted in many
European and Asian manufacturers setting up plants in Mexico, giving the retailer cheaper access to more
foreign brands.
Other Economic Alliances
Perhaps the world’s developing countries have the most to gain from successful integrative efforts.
Because many of these countries are also quite small, economic growth is difficult to generate internally.
Quite a few have adopted policies of import substitution to foster economic growth.

 Integration in Latin America

In a dramatic transformation, these nation sought free trade as a salvation from stagnation,
inflation, and debt. In response to these developments, Brazil, Argentina, Uruguay, and Paraguay set up
common market called MERCOSUR (Mercado Común del Sur)

 Integration in Asia
The fact that regional integration is increasing around the world may drive Asian interest to it
for pragmatic reasons.
Future integration will most likely use the frame of the most established arrangementvin the
region, the Association of Southeast Asian Nations. (ASEAN)
 Integration in Africa and the Middle East
In addition to wanting to liberalize trade among members, African countries want to gain better
access to European and North American markets for farm and textile products.
The objective of the Economic Community of West African States (ECOWAS) was to form a
customs union and eventually a common market.
Effects of Change
The first task is to envision the outcome of the change. Change in the competitive landscape can be
dramatic if scale opportunities can be exploited in relatively homogenous demand conditions.
Strategic Planning
The international marketer will then have to develop a strategic response to the new environment to
maintain a sustainable long-term competitive challenge.
Reorganization
Whatever changes are made, they will require company reorganization.
Lobbying
International managers, as change agents, must constantly seek ways to influence the regulatory
environment in which they have to operate.
*EMERGING MARKETS
Broadly defined, an emerging market is a country making an effort to change and improve its economy
with the goal of raising its performance to that of the world’s more advanced nations.
2.4 THE INTERNATIONAL MARKETPLACE

The Cisco Playbook for Emerging Markets

Early in the 21st century, Cisco approached emerging markets in the same simplistic way as most
developed-market companies did: it had a few sales offices and distributors but no specialized effort.
Today, over $4.5 billion of its total $39 billion in sales come from emerging markets, such as Saudi
Arabia, Turkey, and Poland.

WIN THE GOVERNMENT, BUSINESS WILL FOLLOW

Cisco CEO John Chambers and emerging-markets chief Paul Mounford focus on selling “country
transformation” plans to head of state and top ministers. Since Governments often drive these massive
investment initiatives, success there converts into equipment sales at companies building the nation’s
infrastructures.

SELL MORE THAN TECHNOLOGY

Cisco focuses on working with governments on broad issues. Cisco brought in consultants and partners to
build an online system that allows travelers to secure a visa and hotel room in hours rather than weeks.

CHARITY PAYS

Chambers and Cisco have won big points in the Middle East and elsewhere by getting involved in
philanthropic efforts. In Jordan , the company helped launch training program to boost the skills of the
poverty-stricken. It is also giving away its high-end videoconferencing systems, which can cost up to
$300,000 per location, to all Middle Eastern head of state, including Israel’s Prime Minister.

HIRE WELL-CONNECTED LOCALS

Cisco doesn’t just hire locals: It recruits top power brokers.

CREATE JOBS

With half of its population under 21, Saudi Arabia needs to create millions of jobs to absorb those
entering the labor force and build a modern economy. Cisco has agreed to invest $265 million in the
country over five years.

CREATE AND ADAPT PRODUCTS FOR LOCAL NEEDS

Cisco has a campus in Bangalore, India, from which teams of engineers can be dispatched to cater to
different market needs.

ADJUST ENTRY STRATEGY

GM entered the Russian market to produce SUV’s in a joint venture with AvtoaVAZ, Russia’s largest car
maker. GM chose to use a joint venture to secure a local engineering source to eliminate many of the risks
that lead to failure in emerging markets. Since the car, the Niva, is 100 percent designed in Russia, the
cost of engineering is substantially lower than what GM would have to pay in Europe. Relying
completely on local content protects GM from any protective scheme that the government may impose.
Another benefit of GM’s strategy is securing an existing dealer network. Some of consumers from
different country typically want to lay their hands on computers before they buy them. That means, the
best way to reach them is via vast retailing operations, the strength of local players Lenovo and Founder
Electronics, which both rank ahead of Dell. Dell’s computers are sold nearly 3,000 outlets of the Gome
and Sunning electronics store chains. To maintain its core approach , Dell set up kiosks to demonstrate its
SmartPC and other products and allow for orders from these kiosks.

MANAGE AFFORDABILITY

Volkswagen, which arrived in 1984, and General Motors, which established its operation in 1997, have
dominated the Chinese auto markets. However , they are no facing competition offering more
economically priced cars. The reason for the shift in purchasing preferences is that the typical buyer has
changed. Only a few years ago, the majority of purchases were made by state-owned companies, for
whom price was not the critical criterion. Currently, most buyers are individuals who want the best deal
for their money. A critical battleground is emerging for companies on the “good-enough” market
segment, home of reliable-enough products at low-enough prices to attract the fastest-growing segment of
mid-level Chinese customers. This may mean that rather than paying a 70 to 100 percent premium for a
global brand, the customer is only willing to pay 20 to 30 percent.
INVEST IN DISTRIBUTION

Kodak has nearly 8,000 photo store across China, The company taps the desire of many Chinese to run
their own businesses while helping them negotiate setting up their operations. Kodak negotiated a deal
with the Bank of China and other big banks to arrange financing for individuals lacking capital.

BUILD STRONG BRANDS

The appeal of recognizable brands the common characteristic across the emerging markets. While it is
easiest for international marketers to extend the global brands to emerging markets, some companies such
as Danone acquire companies but continue selling the products under original names. By adding a new
quality dimension to well established brands, the consumers loyalty is ensured.

DEVELOPING MARKETS

The time has come to look at the four billion people in the world who live in poverty, subsisting on less
than 2,000 a year. Not only is this segment a full two-thirds of the current market place, but it is expected
to grow up to six billion by 2040. Despite initial skepticism about access and purchasing power,
marketers are finding that they can make profits while having a positive effect on the sustainable
livelihoods of people not normally considered potential costumers. However, it will require radical
departures from the traditional business models; for example, new partnerships and new pricing structures
it allows costumers to rent or lease rather than buy and providing new financing choices for purchases.

Five elements of success to take advantage of and thrive in developing markets.

RESEARCH

The first order of business is to learn about the needs, aspirations, and habits of targeted populations for
whom traditional intelligence gathering may not be the most effective. For example, just because the
demand for land lines in developing countries was low, it would have been wrong to assume that little
demand for phones existed.

CREATING BUYING POWER

Without credit, it is impossible for many of the developing-country consumers to make major purchases.
Programs in microfinance have allowed consumers, with no property as collateral, to borrow sums
averaging $100 to make purchases and have retail banking services available to them. Lenders have
helped millions of families escape poverty.

TAILORING LOCAL SOLUTIONS

In the product area, companies must combine advanced technology with local insights.

IMPROVING ACCESS

Due to economic and physical isolation of poor communities, providing access can lead to a thriving
business. In Bangladesh , GrameenPhone Ltd. Leases access to wireless phones to villagers. Every phone
is used by an average of 100 people and generates $90 in revenue a month- two or three times the
revenues generated by wealthier user who own their phones in urban areas. Similarly, the Jhai
foundation , an American-Lao foundation, is helping villagers in Laos with internet access. The first step,
however, was to develop an inexpensive and robust computer.

The XO-1, previously known as $100 Laptop, is an inexpensive laptop computer intended to be
distributed to 150 million children in developing countries around the world.

SHAPING ASPIRATIONS

The biggest challenges in developing markets are in providing essential services. In this sense, developing
markets can be ideal settings for commercial and technological innovation. With significant demand for
mobile handsets in developing countries, both Nokia and Motorola have developed models that sell for as
little as $25. They are ideally suited to match consumer demand for inexpensive phones with the features,
quality, and brand names consumers want. Emerging low-cost producers from China cannot match the
volume or the franchises of the global players. Global marketers are very often the only ones that can
realistically make a difference in solving some of the problems in developing markets. Developing new
technologies or products is a resource-intensive task and requires knowledge transfer from one market to
another. Without multinationals as catalyst, nongovernmental organizations, local governments, and
communities will continue to flounder in their attempts to bring development to the poorest nations in the
world.

The emergence of these markets presents a great growth opportunity for companies. It also
creates a chance for business, government, and civil society to join together in a common cause to help
the aspiring poor to join the world market economy. Lifting billions of people from poverty may help
avert social decay, political chaos, terrorism, and environmental deterioration that is certain to continue if
the gap between the rich and poor countries continues to widen.
 Chapter 3
Trade Policy and Institutions
The historical dimension
Many peoples throughout history have gained pre-eminence in the world through their trade activities.
Among them were the Etruscans, Phoenicians, Egyptians, Chinese, Spaniards, and Portuguese. To
underscore the role of trade, we will take a closer look at some selected example.
One of the major world powers in ancient history was Roman Empire. Its impact on thought, knowledge,
and development and still be felt today. Even while expanding their territories through armed conflicts,
the Roman placed primary emphasis on encouraging international business activities.
The modern day
There are circumstances in which legal rules fail to keep situations under control and cause major
setbacks to international trade. If an area represents basically ungoverned space due to continuous illegal
activity, corporation must bear the cost if they have to do business there. More than two millennia ago
Pompeius, the roman general and consul, needed to equip a fleet to subdue pirates that disrupted the
shipping of goods. In 2008, large scale piracy has returned to Somali waters with a major effect on
shipping cost.
Global Division
After 1945, the world was sharply split ideologically into west and east, a division that had major
implications for trade relations. The Soviet Union, as the leader of the eastern bloc, developed the council
for Mutual Economic Assistance (CMAE or COMECON), which focused on developing strong linkages
among the members of the Soviet bloc and discourage relations with the west.
TRANSNATIONAL INSTITUTION AFFECTING WORLD TRADE
World Trade Organization (WTO)
This world trade organization has its origins in the General Agreement on Tariffs and Trade (GATT), to
which it became the successor organization in January of 1995. In order to better understand the
emergence of the WTO, a brief review of the GATT is appropriate. The GATT has been called “a
remarkable success story of a post war international organization that was never intended to become one.”
It began in 1947 as a set of rules for non-discrimination, transparent, procedures, and settlement of
disputes in international trade.
THE INTERNATIONAL MARKET PLACE
Accessing the Hallowed Halls of the WTO
On July 23, 2008, after 8 years negotiation, the general council of the world trade organization (WTO)
welcomed Cape Verde, making in the 153rd member of the WTO. Cape Verde is an archipelago located in
the Atlantic Ocean, off the west coast of Africa. The road to accession is by no means an easy one.
International Monetary Fund
The International Monetary Fund (IMF), conceived in 1944 at Bretton woods in New Hampshire, was
designed to provide stability for the international monetary framework. It obtained funding from its
members, who subscribed to a quota based on expected trade patterns and paid 25% of the quota in gold
or dollars and the rest in their local currencies. These funds were to be used to provide countries with
protection against temporary fluctuations in the value of their currency. Therefore, it was the original goal
of the IMF to provide for fixed exchange rates between countries.
World Bank
The World Bank’s official name is the international Bank for reconstruction and Development. It was
formed in 1944 to aid countries suffering from the destruction of war. After completing this process most
successfully, it has since taken on the task of aiding world development. With new nations emerging from
the colonial fold of the world powers of the early twentieth century, the bank has made major efforts to
assist fledgling economies to participate in a modern economic trade framework.
Regional Institution
The WTO, IMF, and World Bank operate on a global level. Regional changes have also taken place,
based on the notion that trade between countries needs to be encouraged. Of particular importance was
the formation of economic blocs that integrated the economic and political activities of nations.
Trade Positions Compared
Over the years, international trade positions have changed substantially when measured in terms world
market share.
A Diagnosis of the U.S. Trade Position
The developments just enumerated foster the question: why did these shifts occur? We should not
attribute changes in U.S. trade performance merely to temporary factors such as the value of the dollar,
the subsidization of exports from abroad, or the price oil. We need to search further to determine the root
causes for the decline in U.S. international competitiveness.

The Impact of Trade and Investment

The Effect of Trade

Exports are important in a microeconomic sense, in terms of balancing the trade account. Export are
special because they can affect currency values and the fiscal and monetary policies of governments,
shape public perception of competitiveness, and determine the level of imports a country can afford.
Exports can be instrumental in creating jobs.Equally important, through exporting, firms can achieve
economies of scale.On the import side, firms become exposed to new competition, which may offer new
approaches, better processes, or better products and services.

The Effects of International Investment

International marketing activities consist not only of trade but of a spectrum of involvement, much of
which results in international direct investment activities. Such investment activities can be crucial to a
firms success in new and growing markets. To some extent, these foreign direct investment substitute for
trade activities. Even though suggests an open investment policy that welcome foreign corporations ,some
degree of uneasiness exist about rapid growth of such investment.A general restrictions of foreign
investment might well be contrary to the general good of a country's citizen.

Policy Responses To Trade Problems

The world policy implies that there is a coordinated set of continuous activities in the legislative and
executive branches of government. Policy responses have consisted mainly of ad hoc reactions, which
over the years have changed from deep regret to protectionis. More recently , industry pressures have
forced increase action.

Restrictions of Imports

In light of persistent trade deficits, growing foreign direct investment, and the tendency by some firms
and industries to seek legislative redress for failures in the market place. Many resolutions have also been
passed and legislation enacted admonishing the president to play closer attention to trade.

Trade Barriers

• Special Imports authorization

• Restrictions on data processing

• Voluntary exports restraints

• Advance Imports deposits

• Taxes on foreign exchange

• Preferential licensing applications

• Excise duties

• Licensing fees

• Discretionary licensing

• Trade restriction on e-commerce

• Anticompetitive practices

• Burdensome marketing rules

• Green barriers
• Discriminatory tax measures

• Failure to protect copyrights and subsidies Country quotas

• Testing, labeling

• Seasonal prohibition

• Health and sanitary prohibition

• Certification

• Foreign exchange licensing

• Barter and counter trade requirements

• Customs surcharges

• Stamp taxes

• Consular invoice fees

• Taxes on transport

• Export subsidies

Export Promotion Efforts

Many countries provide export promotion assistance to their firms. Key reasons for such assistance are
the national need to earn foreign currency.

A Strategic Outlook for Trade and Industry Policy

All countries have an international trade and investment policies. The importance and visibility of these
policies have growth dramatically as international trade and investment flows have become more relevant
to the well being of most countries. Given the growing links among countries, it will be increasingly
difficult to consider domestic policy without looking at international repercussions.
A U.S. Perspective

The U.S. need is for a positive trade policy rather than reactive, ad hoc responses to specific situation.
Protectionistic legislative can be helpful, provided it is noPerspective

An International Perspective

Trade and Investment negotiations must continue, in doing so, trade and investment policy can take either
a multilateral or bilateral approach. Bilateral negotiations are carried out mainly between two nations,
while the multilateral negotiations are carried out among a number of nations. The approach can also be
broad, covering a wide variety of goods, services, or investment or it can be narrow in that focuses on
specific problems.

The International Marketplace

The Trade Reality of E-commerce

The internet presents an opportunity for businesses and individuals to collaborate and communicate faster
and cheaper ever before. However, the new technology poses challenges to modern policymakers,
businesses and consumers.