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
 The World Economy - Overview
During the last 50 years:
Emergence of global markets
Integration of world economy

Capital movements are driving force

Trade in services and goods is roughly $4 trillion a
year

Production is “uncoupled” from employment

Macroeconomics of individual countries no longer

control economic outcomes
 Economic Systems

Three types of economic systems:

Capitalist
Socialist
Mixed

Classification based on dominant method of

resource allocation
Market allocation
Command allocation
Mixed system
 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
 Economic Systems – Command
Allocation

State has broad powers to serve public interest

Decides which products to make
Decides how to make them

Countries that relied upon command allocation

systems for decades: China, former USSR, India
 Economic Systems – Mixed
Systems

In reality, no pure market or command allocation

systems among the world’s economies

In OECD (Org of economic cooperation and

development) countries, the portion of command
system is high e.g 32% in US to 64% in Sweden
 Economic Systems

Index of Economic Freedom (Source: Heritage

Foundation- Parameters – trade policy, taxation
policy, govt consumption of economic output,
capital flows,foreign investment,wages, price
control)
Free: Hong Kong, Singapore, New Zealand, ,
Bahrain, Luxembourg, US,
Mostly Free Canada, Chile, El Salvador,Taiwan
Mostly Unfree : Cambodia. Mexico, Slovak ,
Slovenia, Swaziland
Repressed
North Korea, Iraq, Libya, Somalia, Cuba
 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
 Country Income Segmentation
$10,726 High Income (Advanced Countries)
-Triad

+ $3,466-10,725 Upper Middle Income (NIC’s)

+ $876-3465 Lower Middle Income (DC’s)

< $875 Lower Income (LDC’s)

Basket Cases (BC’s)-Ethiopia,

Mozambique
 Stages of Market Development –
High Income Countries
GNP per capita above $10,726
Luxembourg- $65,602, Norway at $59,768,
Account for 16% of world population and 82% of
GNP.

Post-Industrial Countries

Importance of service sector – more than 50% of

GNP

Ascendancy of knowledge over capital

 Stages of Market Development –
Upper Middle Income Countries
GNP per capita between $3,466 and $ 10,725.
7% of world polpulation and 7% of GNP.

Characteristics
Rising wages
High rates of literacy
Advanced education

Experience rapidly, export-driven economic growth

Become formidable competitors eg Malaysia

 Stages of Market Development –
Lower Middle Income Countries
Also called less developed countries (LDC's)
GNP per capita between $875 and $3,465
Constitute 39% of world population and 11% of
GNP

Characteristics
Early stages of industrialization
Expanding consumer markets
Consumer mkts expanding.

Major competitive advantage in the production of

mature, standardized, labor-intensive products eg
Indonesia.
 Stages of Market Development –
Low Income Countries
Income per capita less than $875 (constitute 37%
world population and 3% of world GNP)

Characteristics
Limited industrialization
High birth rates
Low literacy rates
Heavy reliance on foreign aid
Political instability
Concentration in Africa, south of the Sahara
 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)

 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
 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
 Income and Purchasing Power (2)

Top 10 Nations ranked by GNP/Capita (2005)

Luxembourg Japan
Norway Denmark
Singapore United States
Switzerland Hong Kong
Kuwait Austria
 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
 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
 Trade Patterns
World merchandise trade has grown faster than world
production during the last 50 years

Top 5 exporting countries Top 5 importing countries

Germany USA
China Germany
USA United Kingdom
Japan France
France Japan
 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