In the first section of this course on Global
Marketing Management, in which we have covered
module 1 and 2, we have tried to build the
base for this course and we have talked about
the globalization and its various facets.
Now, we will move on to the second section
of this course.
That is, Global Marketing Environment.
This, now try to recall from module 1, there
was a slide entitled as global marketing task.
So, we are talking about the external environment,
the uncontrollable environment.
This external or uncontrollable environment
is made up of various different types of environment.
Where in, 1 type of environment is the economic
environment, another type of environment is
the financial environment and the political
and the legal environment and the cultural
environment.
So, module third, fourth and fifth are dedicated
to understanding of economic environment.
Just keep in mind that we are talking of external
environment that is uncontrollable for a company.
So, let us start with the Global Economic
Environment.
There are 3 modules on this Global Economic
Environment.
That is the module 3, third, fourth and fifth.
We will start with module 3 and we will talk
about these 5 things.
We will first have an overview of the world
economy.
Then we will talk about the various economic
systems that are there in this world.
And then, we will see how intertwined, how
integrated the world economy is.
Then we will talk about the country competitiveness;
what does it means.
And then the stages of market development.
Now, the basic idea of this globalization
is that, today countries are much more economically
interdependent than they were earlier.
Growth in financial, international financial
flows.
So, that includes, foreign direct investments,
foreign institution investments and trading
in currency.
They have achieved a life of their own.
And the nature of value adding activity is
changing.
They, earlier the value adding activities
were related to manufacturing.
Now, they are shifting to services and information
manipulation.
So, this world is becoming a truly global
village.
In the early 20th century, economic integration
was only 10%.
And now, it is more than 50%.
European Union and NAFTA, North American Free
Trade Area, they are highly integrated.
65 years ago, the auto industry was very different.
European automakers like Renault, Citroen,
Peugeot, Morris, Volvo and other produced
vehicle radically different from those of
American makers like Chevrolet, Ford and Plymouth
or Japanese autos made by Toyota and Nissan.
Today, manufacturers make auto for home markets,
but are increasingly becoming global companies
with global products.
In 2008, Ford introduced a model that was
called as Ford Fiesta for the world markets.
Now, this world economy is facing some new
realities.
The first reality is increased volume of capital
movement.
So, trade in currency is increasing.
The second reality is relationship between
productivity and employment.
There was a clear-cut relationship between
productivity and employment.
So, but, manufacturing employment in manufacturing
is decline.
So, when we had more manufacturing, the idea
was it will give rise to more employment.
But now, even though companies are investing
and manufacturing; but it does not giving
rise to employment.
Emerging of the world economy as a dominant
economic unit.
So, the world economy is now itself becoming
the dominant economic unit.
The end of cold war, the war between communism
and capitalism has come to an end.
And the last reality is e-commerce.
There are companies that work 24/7.
And there are lot of companies like that,
Amazon and eBay, Facebook, etcetera.
Next thing that we will see in this module
is the various types of economic system that
are there in this world.
You see that on the y-axis we have resource
ownership.
On the x-axis we have resource allocation.
Now, resource allocation can be done by market
or it can be done by government.
That is called as command.
While the resource ownership can be of private
or it can be state.
Now, this gives rise to 4 different types
of economic system.
1 is market capitalism, market socialism,
centrally planned capitalism and centrally
planned socialism.
Let us see the peculiarities or the characteristics
of each of this economic system and let us
start with market capitalization.
Keep in mind that in market capitalization,
resource allocation is done by market and
resource ownership is in private hands.
So, individuals and firms, they allocate resources.
Production resources are privately owned.
They are driven by consumers.
That is, the forces of demand and supply.
The government’s role is to promote competition
among firms and ensure that the consumers
are protected.
And this kind of a system is practiced around
the world.
Most notably in Western Europe and North America.
All market oriented economics do not function
in an identical manner.
So, there are 2, you will see 2 different
kind of examples here.
U.S. that is competitive free for all and
decentralized initiative, while Japan, it
is sometimes called as Japan, inc.
Because, it has a tightly run highly regulated
economic system that is also market oriented.
Next comes centrally planned socialism.
In centrally planned socialism, keep in mind
that the resource allocation is on the, is
by the government, but resource ownership
is private.
This is opposite to market capitalism, state
holds broad powers to serve the public interest,
decides what goods and services are produced
and in what quantities.
Consumer can spend only what is available.
Governments own entire industries and they
control distribution.
Demand typically exceeds supply.
There is little reliance on product differentiation,
advertising pricing and strategy.
China, India and former USSR are now moving
towards the market allocation and private
ownerships, but earlier they were typical
examples of centrally planned socialism.
Then comes centrally planned capitalism.
Economic systems in which command resources
allocation is used extensively in an environment
of private resource ownership.
For example, Swedish government controls 2/3
of all spendings.
A hybrid of centrally planned socialism and
capitalism.
Now, Swedish government plans to move towards
privatization.
The fourth kind of economic system is market
socialism.
This is a type of economic system involving
the public cooperative or social ownership
of the means of production in the framework
of market economy.
Market socialism differs from non-market socialism.
In that, the market mechanism, that is, how
the forces and demand and supply interact
is utilized for the allocation of capital
goods and the means of production.
So, you see that the, all along these 4 types
of systems, the degree of economics, economic
freedom is different.
So, there in Washington DC;
There is a Heritage Foundation that is a conservative
think tank.
It ranks country by degree of economic freedom
they support.
And the ranking, they give ranking on the
basis of we will talk about the various the
characters or various factors on which they
give a ranking to various countries.
But they put countries into 4 category: free,
mostly free, mostly unfree and repressed.
And these are the variables that are considered
to decide what kind of economic freedom a
country has.
1 key economic variable is the trade policy,
the taxation policy, government consumption
of economic output, monetary policy, capital
flows and foreign investments, the banking
policy, wages and price controls and property
rights regulation and the black market.
Now, for a next couple of minutes, let us
see how intertwined, how integrated the world
economy is.
The total world merchandise trade, merchandise
means goods.
It volume, it grew from $7.6 trillion in 2000
to $19 trillion in 2014.
From 1997 to 2007, world’s GDP, that is
Gross Domestic Product grew more than 30%.
And in the same period, world exports of merchandised,
merchandise increased by more than 60%.
What is the net result of all these factors?
That is, there is a greater interdependence
of countries and economies because there is
more amount of export and import is happening.
And this means that there is increased competitiveness
because you can export only what you are making
at a lesser cost than the other parts of the
world.
And need for firms to keep a constant watch
on the international economic environment.
Consumers and company in the U.S. and Japan
are able to find domestic sources for their
needs because of their diversified and large
extremely large economies.
But this flexibility, this advantage is not
available to small countries.
So, the larger the country’s domestic economy,
the less dependent it tends to be on exports
and imports relative to its GDP.
Intertwining of economies by the process of
specialization due to international trade
leads to job creation in both exporting and
importing countries.
Now, see the amount of international trade
in currency, the weekly volume of international
trade in currencies exceed the annual value
of trade in goods and services.
All nation with even partially convertible
currencies are exposed to the fluctuation
in the currency market.
A rise in the value of local currency made
makes export more expensive.
And therefore, the exports reduces.
The rising currency value also determine foreign
investments in a country and may encourage
outflow of investments.
Unfortunately, the influence of these short-term
money flows are nowadays far more powerful
regarding exchange rates than an investment
by Japanese or a German auto maker.
Now, what is country competitiveness?
Now, we have seen that the more the country
is competitive; we have seen that, when we
were talking about the net result of these
factors, we have seen that this these factors
results in increased competitiveness.
Now, let us see what is country competitiveness.
It refers to the productiveness of a country
which is represented by its firm’s domestic
and international productive capacity.
And this country competitiveness is not fixed.
The role of human skill resources has become
increasingly important as a primary determinant
of industry and country competitiveness.
Next, we will see the stages in market development.
World Bank has defined 4 categories of development
using Gross National Income.
Now, what is Gross National Income?
Like Gross Domestic Product, Gross National
Income is a measure of county’s income.
Whereas GDP only counts income received from
domestic sources, Gross National Income includes
net income received from abroad.
Although the income definition for each of
the stages is arbitrary, countries within
a given category generally have a number of
characteristics in common.
Thus, the stages provide a useful basis for
global market segmentation and target marketing.
So, the idea of understanding the stages of
market development is that we are able to
identify how to go about making our marketing
strategy, how to go about doing segmentation
and targeting.
Now, this, these stages of market development
are on the basis of income.
Then, there are BEMs, the, which means Big
Emerging Markets, identified 10 years ago,
where countries in Central Europe, Latin America,
and Asia, that were to have rapid economic
growth.
Today, the focus is on BRIC.
That is, Brazil, Russia, India and China.
BRIC nations are expected to be the key players
in global trade.
Even as they track record on human rights,
environment protection and other issues are
scrutinized by their trading partners.
The BRIC government leaders also come under
pressure at home as their developing market
economy economies create greater income disparity.
Microsoft example illustrates the nature of
the market opportunities in these countries.
In the financial year 2008, the software giant’s
collective revenues from BRICs grew 54% compared
with overall global revenue growth of 18%.
Now, let us see the various stages of market
development.
The first is low-income countries.
GNI, Gross National Income, per capita of
$996 or less.
The characteristics of these kind of countries
are: they have very limited industrialization;
high percentage of population is involved
in farming; high birth rate; low literacy
rate; they have a heavy reliance on foreign
aid; political instability and unrest; these
countries are concentrated in Sub-Saharan
Africa; Uzbekistan and Turkmenistan.
Next comes low-middle-income countries.
In these countries, the Gross National Income
per capita is $996 to $3,945.
So, all those countries that have a GNI per
capita between $996 to 3,945, they are coupled
together and they are called as lower-middle-income
countries.
The characteristics are, they are rapidly
expanding consumer markets.
The labor is cheap.
Mature, standardized, labor-intensive industries
like footwear, textile and toys.
Now, these are called as mature and standardized
because there is lot of competition in this
in these kind of industries across the world.
And therefore, cheap labor is 1 advantage
that the companies can get in terms of cost.
Another category of countries is upper-middle-income
countries.
In these countries, Gross National Income
per capita is between $3,946 to $12,195.
The characteristics of these countries are,
they are rapidly industrializing and their
employment is less based on agriculture, but
it comes more from manufacturing.
There is increasing urbanization; wages are
rising in these kind of countries; high literacy
rate and advanced education; lower wage costs
than advanced countries; also called newly
industrialized economies, that is NIEs; examples
are, Brazil, Russia, Malaysia, Chile, Venezuela,
Hungary and Mexico.
Then there are high-income countries.
In high-income countries, the Gross National
Income per capita is more than $12,196.
They are also known as advanced developed
industrialized or post-industrial countries.
Their characteristics as you can see from
the picture on the left, Tokyo, this is a
picture of Tokyo.
So, the characteristics are: sustained economic
growth through disciplined innovation; service
sector contributes more than 50% of the Gross
National Income; households have high ownership
levels of basic products.
Other characteristics of these high-income
countries are that;
Their importance of information processing
and exchange.
So, these countries, they give much more importance,
they place much for importance on information
processing and exchange.
And they have, they give more importance to
knowledge over capital, intellectual over
machine, intellect over machine technology,
scientists and professionals over engineers
and semi-skilled workers.
They are future oriented and importance of
interpersonal relationship is more important
in these countries.
With this, we end the module 3 of this section,
that is the Global Economic Environment.
In the next module that again we will talk
about the Global Economic Environment and
we will talk about the evolution of various
cooperative trading arrangements.
