Download economic environment

The Global
Economic
Environment
Global Marketing
Chapter 2 & 3
1
The World Economy—
An Overview
• In the early 20th
century economic
integration was at
10%; today it is 50%
• Integration is
particularly striking in
the two regions EU
and NAFTA.
• Global competitors
have displaced or
absorbed local ones
2-2
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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.
Gross domestic product (GDP) , a measure of a nation’s
economic activity, is calculated by adding consumer
spending (C), investment spending, (I), government
purchases, (G), and net exports (NX):
C+I+G+NX = GDP
–
The world economy, not individual countries, is the
dominating factor.
2-3
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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 re-evaluate business
models
2-4
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Economic System
• Criteria used to categorize economic system
1- Type of economy: Industrial state, emerging economy,
transition economy, developing nation.
2- Type of government: Monarchy, dictatorship, or a tyrant,
autocratic one-party system, democracy with a multi-party
system, dominated by other state, unstable or terrorist
nation.
3- Trade and capital flows
4- The commanding height
5- Services provided by the state and funded through taxes.
6- Institutions
7- Markets
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Economic Systems
Resource Allocation
Market
Private
Resource
Ownership
State
Command
Market
Capitalism
Centrally
Planned
Capitalism
Market
Socialism
Centrally
Planned
Socialism
2-6
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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
• U.S “wild free for all”. Japan as Japan Inc.
2-7
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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 only what is available
• Government owns entire industries and
controls distribution
• Demand typically exceeds supply
• Little reliance on product differentiation,
advertising, pricing strategy
• China, India, and the former USSR now
2-8
moving towards some economic freedom
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Centrally Planned Capitalism &
Market socialism
CPC Economic system in which command
resource allocation is used extensively in an
environment of private resource ownership
- Example: Swedish government controls 2/3s
of all spending; a hybrid of CPS and
capitalism
Market socialism permits market allocation
policies within an overall environment of state
ownership (e.g., China gives freedom to
businesses/individuals to operate in a market
system).
2-9
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GATT
• General Agreement on Tariffs and
Trade
– Treaty among nations to promote trade
among members established in 1947
• Handled trade disputes
• Lacked enforcement power
• Replaced by World Trade Organization in
1995
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The World Trade
Organization
• Forum for traderelated
negotiations
among 150
members
– Based in Geneva
– Serves as dispute
mediator through
DSB
– Has enforcement
power and can
impose sanctions
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Preferential Trade
Agreements
• Many countries seek to lower barriers to
trade within their regions
• PTAs give partners special treatment
and may discriminate against others
• Over 150 PTAs have been notified to
the WTO
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Free Trade Area
• Two or more countries agree to
abolish tariffs and other barriers
to trade amongst themselves
• Countries continue independent
trade policies with countries
outside agreement
• Rules of origin requirements
restrict transshipment of goods
from the country with the lowest
tariff to another
NAFTA Protest in Ottawa
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Customs Union
• Evolution of Free Trade Area
• Includes the elimination of internal barriers to
trade (as in FTA)
• AND establishes common external barriers to
trade
• Examples: The EU and Turkey, the Andean
Community, Mercosur, CARICOM, Central
American Integration System (SICA)
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Common Market
• Includes the elimination of internal
barriers to trade (as in free trade area)
• AND establishes common external
barriers to trade (as in customs union)
• AND allows for the free movement of
factors of production, such as labor,
capital, and information
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Economic Union
• Includes the elimination of internal barriers to
trade (as in free trade area)
• AND establishes common external barriers to
trade (as in customs union)
• AND allows for the free movement of factors
of production, such as labor, capital, and
information (as in common market)
• AND coordinates and harmonizes economic
and social policy within the union
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Economic Union
European
Union Flag
• Full evolution of economic union
– creation of unified central bank
– use of single currency
– common policies on issues such as
agriculture, social policy, transport,
competition, mergers, taxation
– requires extensive political unity
– would lead to a central government in time
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North America—NAFTA
• Canada, United States, Mexico
• NAFTA established free trade area
–All three nations pledge to
promote economic growth
through tariff reductions and
expanded trade and
investment
–No common external tariffs
–Restrictions on labor and
other movements remain
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U.S.-Mexico Border Crossing
NAFTA Income and Population
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What are the most important trading
arrangements in Latin America?
Important trading arrangements include:
• Central American Integration System
(SICA)
• Andean Community
• The Common Market of the South
(Mercosur)
• The Caribbean Community and
Common Market (CARICOM).
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Asia-Pacific: The Association of
Southeast Asian Nations (ASEAN)
• The Association of Southeast Asian
Nations (ASEAN) was established in
1967 as an organization for economic,
political, social, and cultural cooperation
among its member countries.
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The European Union (EU)
• Initially began with the 1958 Treaty of Rome
• Objective is to harmonize national laws and
regulations so that goods, services, people,
and money could flow freely across national
boundaries
• 1991 Maastricht Treaty set stage for
transition to an economic union with a central
bank and single currency (the Euro)
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European Union
• 27 countries
• 491 million people
• Combined GNI of
$14.7 trillion
• Euro currency, 1999
• Harmonization of
laws and regulations
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Marketing Issues in EU
• Marketing mix issues must be addressed in Europe's
single market (e.g., content and other product
standards that varied among nations must be
harmonized). Harmonization means that content
and other product standards that varied among
nations have been brought into alignment.
• Direct comparability of prices in the euro zone forces
companies to review pricing policies; the marketing
challenge is to develop strategies to take advantage
of a large, wealthy market.
• The enlargement of the EU will further impact
marketing strategies and harmonized laws; food
safety laws in the EU are different form those in
Central European countries.
©2011 Pearson Education, Inc. publishing as Prentice Hall
Marketing Issues in EU (Cont’d)
• Because they are in transition, the markets of
Central and Eastern Europe present
interesting opportunities and challenges.
• Global companies view the region as an
important new source of growth, and the first
country to penetrate a country market often
emerges as an industry leader.
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The Middle East
• Afghanistan, Bahrain, Cyprus, Egypt, Iran, Iraq,
Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi
Arabia, Syria, the United Arab Emirates, Yemen
– Primarily Arab, some Persian and Jews
– 95% Muslim, 5% Christian and Jewish
– 34.7 million people, 24 million in Saudi Arabia
– 25% of world’s oil in Saudi Arabia
– Strong impact of world economic crisis on Dubai
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Gulf Cooperation Council
•Established in 1981 by 6 countries with 45% of world’s oil
•These countries are attempting to diversify industries
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Marketing Issues in Middle East
• Connection is a key word in conducting business in the Middle
East; developing relationships with key business and
government figures are likely to cut through red tape.
• Bargaining is culturally ingrained, and business people should
be prepared for haggling; establishing personal trust, mutual
trust, and respect are essential.
• Decisions are not made by correspondence or telephone. The
Arab businessperson does business with the individual, not the
company.
• Women are not part of the business or entertainment scene for
traditional Muslim Arabs.
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Africa
• 54 nations over three distinct areas
– Republic of South Africa
– North Africa
– Black Africa or sub-Saharan Africa
• With 1.3 percent of the world's wealth and 11.5 percent of its
population, Africa is a developing region with an average per
capita income of less than $600.
• The Arabs living in North Africa are differentiated politically and
economically.
• The six northern nations are richer and more developed, and
several—notably Libya, Algeria, and Egypt— benefit from large
oil resources.
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For what does the acronym “Mena”
stand?
• The Middle East and North Africa are
viewed as a regional entity “Mena”; the
economies of non-oil, “emerging Mena”
(Jordan, Lebanon, Morocco, Tunisia)
have performed best.
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Regional agreements (Africa)
– Economic Community of West African
States (ECOWAS).
– East African Cooperation.
– South African Development Community
(SADC).
©2011 Pearson Education, Inc. publishing as Prentice Hall