Download Chapter 2 The Global Economic Environment

Chapter 2
The Global Economic
Environment
2-1
Review of Chapter 1
What is Global
Marketing?
How is it different
from regular
marketing?
2-2
Reasons for Global Marketing
Growth
– Access to new markets
– Access to resources
Survival
– Against competitors with lower costs (due to
increased access to resources)
2-3
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
2-4
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.
2-5
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
2-6
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
2-7
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
2-8
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
2-9
Turkish Trading Partners (2005)
Germany 13%,
UK 8.2%,
Italy 7%,
US 6.9%,
France 5.1%,
Spain 4.2%
2-11
2-12
2-13
2-14
Gross National Product TURKEY
Total
Year
Population
Million $
Per 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
2-15
Gross National Product TURKEY
2-16
2-17
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
2-18
Gross Domestic Income (Nominal)
2-19
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
2-20
Purchasing Power Parity (per capita)
2-21
Turkey
2-22
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%.
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.
2-24
Human Development Index
2008 update
2-25
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
2-26
The Nationality of the World’s 100 Largest
Industrial Corporations (by country of origin)
2-4
1963
1979
1984
1990
1993
1995
1996
2000
United States
67
47
47
33
32
24
24
36
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
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
2
1
1
-3
1
1
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
2
13
29
4
2
2
5
------1
1
4
------
12
5
11
22
3
-5
3
-1
-----------2
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
2-28
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
2-29
Economic Systems
4 main types of economic systems
– Market Capitalism
– Centrally planned socialism
– Centrally planned capitalism
– Market socialism
2-30
Economic Systems
Resource Allocation
Market
Private
Resource
Ownership
State
Command
Market
Capitalism
Centrally
Planned
Capitalism
Market
Socialism
Centrally
Planned
Socialism
2-31
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
2-32
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
2-33
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
4,350
Large appliances
16
58
Televisions
24
87
Telephones
24
87
Cars
16
58
Living space (sq.m.)
73.3
Millions of
households
approaching
$18,000 per year
buying power
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.
2-34
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
0.66
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
EURO
Mexico Peso
0.37
2.21
2.28
3.12
3.11
5.31
6.45
7.60
7.92
1.58
1.68
0.99
1.11
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
2-35
2-36
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 McFadden, “Protectionism Can’t Protect Jobs,”
Fortune, May11, 1987, pp. 125.
2-37
Big Emerging Markets
China
India
Indonesia
South Korea
Brazil
Mexico
Argentina
South Africa
Poland
Turkey
██ Emerging markets██ Developed markets
2-38
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.
2-39
Stages of Market Development
2-40
Stages of Market Development
World Bank has defined four categories of
development
–
–
–
–
High-income countries
Upper-middle income countries
Lower-middle income countries
Low-income countries
Based upon Gross National Product (GNP)
2-41
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
2-42
Turkey
Return
2-43
Influencing the World Economy
Group of Seven (G-7)
Organization for Economic Cooperation and
Development
The Triad
2-44
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
2-45
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.
2-46
N-11
2-47
BRIC
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.
2-48
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.
2-49
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
2-50
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)
2-51
Movie Clip from India
2-52
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
2-53
Balance of Payments
The balance of payments (or BOP)
measures the payments that flow between
any individual country and all other
countries.
2-55
Balance of Payments (2005)
Blue = countries in current account surplus; Red = countries in current account deficit, 2005
2-56
US Trade Balance
2-57
2-58
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
2-61
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
2-62
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
2-63
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
2-64
Big Mac Index for Selected
Countries
2-65
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
2-66
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
2-67
Looking Ahead
Chapter 3 – The Global Trade Environment:
Regional Market Characteristics and
Preferential Trade Agreements
2-68
2-69
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
2-70
2-71
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
2-72
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
2-73
Centrally-Planned Capitalism
Economic system in which command
resource allocation is used extensively in an
environment of private resource ownership
Examples:
– Sweden
– Japan
Return
2-74
Market Socialism
Economic system in which market
allocation policies are permitted within an
overall environment of state ownership
Examples:
– China
– India
Return
2-75
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
2-76
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
2-77
Turkey
Return
2-78
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
2-79
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
2-80
Group of Seven (G-8)
Leaders from these high income countries work to
establish prosperity and ensure monetary stability
World
Development
Report 2006
Return
2-81
Return
2-82
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
2-83
OECD
2-84
OECD Members (2006)
Return
2-85
The Triad
Dominant economic centers of the world
– Japan
– Western Europe
– United States
Expanded Triad
– Pacific Region
– North America
– European Union
2-86
EU
2-87
EU Statistics
Return
2-88
2-89
APEC
Asia Pacific Economic Cooperation
Members
– US, Japan, China, Australasia, Russia, …
Goal
– Lose economic association, forum
2-90
APEC
2-91
Economic Integration in Asia
Asia-Pacific Economic Cooperation (APEC)
Association of Southeast Asian Nations
(ASEAN)
East Asia Economic Group
South Asian Association for Regional
Cooperation (SAARC)
2-92
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)
2-93