Global Marketing

Management

Chapter 2 Global Economic

Environment

Warren J. Keegan
 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

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 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

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 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
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 Economic Systems

Three types of economic systems:

Capitalist
Socialist
Mixed

Classification based on dominant method of resource

allocation
Market allocation
Command allocation
Mixed system

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 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

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 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

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 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

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 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

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 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

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Country Income Segmentation

$9,656 High Income (Advanced Countries)

-Triad
-Others

+ $3,126 Upper Middle Income (NIC’s)

+ $786 Lower Middle Income (DC’s)

< $768 Lower Income (LDC’s)

Basket Cases (BC’s)

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 Global Income & Population
2001
Income GNP GNP/ % Populatio %
(billion) Capita GNP n Pop.
(Millions)
World $30,251 $4,931 100 6,134 100

High $24,280 $24,693 80 983 16

Up-Mid $2,111 $4,476 7 449 7

Low-Mid $3,150 $1303 10 2,418 39

Low $810 $355 3 2,284 37

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Top 10 GNP
(in millions)

 United States $8,259,358

 Japan 4,427,104
 Germany 2,127,086
 France 1,446,515
 United Kingdom 1,359,764
 China 1,179,345
 Italy 1,168,771
 Brazil 850,852
 Canada 602,158
 Spain 544,944

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 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

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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

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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

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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

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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

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 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

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 Income and Purchasing Power
(1)

Income
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

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 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

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 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

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The Location of Population

Country Population GNP/Capita % World

(thousands) (thousands) GNP

China 1,268,121 930 3.9

India 1,015,287 424 1.4
United States 275,746 29,953 27.3
Indonesia 210,785 1,176 0.7
Brazil 170,661 5,535 2.8

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 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

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 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

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 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

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 Trade Patterns (2)

Services Trade
The fastest- growing sector of world trade

In 1994, U.S. service exports totalled $195 Billion

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 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

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