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Global Marketing Environment &

Economic Environment
Global Marketing Management by
Lee & Carter, Keegan & Bhargava,
Business Line, www.ilo.org,

Global marketing environment


......It is the environment comprising those
variables, largely out of the organizations
control but which it must account for, within
which it conducts its business globally

Models of Environmental Analysis

Global Marketing Environment (Levels)

Why should firms analyze the global


environment?

Global Economic Environment: An


Overview (1)
World economy changed profoundly since
WW-II:
1. Emergence of global markets- most fundamental
change
2. Capital movements rather than trade have
become the driving force
3. Production uncoupled from unemployment
4. Macroeconomics of individual countries no
longer control economic conditions- rather it is
the world economy that dominates the scene

Global Economic Environment: An


Overview (2)
5. Growth of commerce via the Internet diminishes
the importance of national barriers
6. In 1990s greatest economic change was end of
Cold War- overthrow of communism as an
economic and political system
7. Economic integration
10% in early 1900s
50 % in 2000s
Significant integration in EU and NAFTA regions

Global economic factors to be


analyzed
1. Economic system the country adopts
2. Economic freedom of country markets
3. Stage of economic development of the country
4. PCI, PPP, spread of income
5. Location of population
6. Balance of Payments position and trade patterns
7. International trade alliances/grouping systems
8. Regional economic organizations/trade blocs
9. International facilitating institutions

(1). Economic systems


1. Market allocation
Resource allocation is based on consumer demand
Economic democracy
Government acts as the watchdog
Eg. US, Hong Kong, Singapore, Japan, Australia, etc.

2. Command allocation
State decides what to produce
Little reliance on marketing mix variables
Distribution handled by Government
Eg. Cuba, Ukraine, Iran, Venezuela, etc.

3. Mixed system
Mix of the above
Eg. Taiwan, UAE, Brazil, India, Sri Lanka, China, etc.
(based on economic freedom score by www.heritage.org, 2009

(2). Economic freedom


Rankings of economic freedom among countries
free, mostly free, mostly unfree, repressed
Variables considered include:
Trade policy
Taxation policy
Capital flows and foreign investment
Banking policy
Wage and price controls
Property rights
Black market
(based on economic freedom score by www.heritage.org, 2009)

Economic freedom: classification


FREE ECONOMY:
US, UK, Switzerland, Hong Kong, Singapore, N.Z.,
Bahrain, Ireland, Australia

MOSTLY FREE ECONOMY:


Canada, Austria, Japan, UAE, Italy, South Korea, France,
Belgium. SA,

MOSTLY UNFREE:
Russia, India, Nigeria, China, Brazil, Egypt,

REPRESSED:
Iran, Iraq, North Korea, Cuba etc.,

World Bank Classification of Economies (based


on 2014 GNI per capita)
Low income economies
$1,045 or less

Lower middle income economies


$1,046 - $4,125

Upper middle income economies


$4,126 - $12,475

High income economies


$12,736 or more
Source: www.worldbank.org/data

(3). Stages of Economic Development


(1)
Low-Income countries

37% of world population


3% of world GNP
Pre-industrial; LDCs
Reliance on foreign aid and high political instability

Lower-middle-income countries

39% of the world population


11% of world GNP
Early stages of industrialization; LDCs
India with $1570 falls in this category

Upper-middle income countries

7% of world population
7% of world GNP
Rapidly industrializing and urbanizing
Rising wages but lower than advanced countries

Refer GNI per capita country-wise


http://data.worldbank.org/indicator/NY.GNP.PCAP.CD?order=wbapi_data_valu
e_2014+wbapi_data_value+wbapi_data_value-last&sort=desc

Stages of Economic Development (2)


High income countries
Advanced and industrialized; few are also oil-rich
16% of world population
82% of world GNP

Basket cases
Are countries with serious economic, social and political
problems making them unattractive for investment and
operations
Low income, no growth, civil strife
Eg. Ethiopia, Mozambique

(4). PCI, PPP, & Spread of Income


For low-unit cost product, population is an important
economic variable
For high-unit cost product, income is an important
economic variable
Spread of income within the population is more
reliable than measuring PCI and PPP of an economy
Eg. What is attracting global marketers to India?
Though Indias PCI is low, its GDP based on PPP is fourth
highest*
moreover, the sizeable populations in middle and higher
income groups attract global marketers
(*World Fact Book country comparison: GDP, 2009; keegan & Bhargava, pp.50)

(5). The location of population


Population an important economic variable
for firms producing low-unit cost products
The 10 most populous countries in the world
account for roughly 60% of the world
population and income
5 largest populous nations accounted for 48%
of world income in the year 2000
Negative correlation between population
growth rate and PCI

(6). Balance of payments and trade


patterns
BOP is a record of all of the economic
transactions between residents of a country
and the rest of the world
Current account is a record of recurring trade in
merchandise and service, private gifts, public aid
Capital account is a record of all long and short-term
investments and capital flows

(7). International Trade Alliances

Free Trade Area (FTA)


Abolish internal trade barriers
Independent external trade policies
NAFTA, SAFTA, Indian FTAs with ASEAN, Japan, Singapore, Malaysia, etc.

Customs Union (CU)


FTA + common external barriers
Mercosur, Andean Group

Common Market (CM)


CU + common flow of factors
Central American Common Market

Economic Union (EU)


CM + unified central bank+ single currency+ common economic policies
European Union

Political Union
EU + political harmony + centralized government policies
US and Canada

(8). Regional Economic Organizations


The European Union
NAFTA
Asian trade groups
SAARC
ASEAN
Asia-Pacific Economic Cooperation

South and Central American trade groups

Andean group
Southern cone common market
CARICOM
Central American Integration System (SICA)

African and middle eastern trade groups


ECOWAS
Arab Maghreb Union

Global Economic Facilitators

Thank you

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