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Global Marketing Management
Warren J. Keegan
Chapter 2 Global Economic
Environment
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Overview
The World EconomyAn OverviewEconomic SystemsStages of Market DevelopmentStages of Economic Development
Income and Purchasing Power ParityThe Location of PopulationMarketing and Economic DevelopmentBalance of Payments
Trade PatternsSummary
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Learning Objectives
Understand the main differences between economic
systems found around the world
Learn ways of classifying countries by their marketdevelopment
Understand consumption patterns in different countries
Know the main regional economic co-operation
agreements
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Economic Systems
Three types of economic systems:Capitalist
Socialist
Mixed
Classification based on dominant method of resource
allocation
Market allocationCommand allocation
Mixed system
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Economic SystemsMarket
Allocation
Relies upon consumers to allocate resources
Role of statePromote competition
Ensure consumer protection
Predominately market economies:US, Western European Countries, Japan
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Economic SystemsCommand
Allocation
State has broad powers to serve public interestDecides which products to make
Decides how to make them
Elements of marketing mix are not used as strategic
variables
Countries that relied upon command allocation systemsfor decades: China, former USSR, India
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Economic Systems
Index of Economic Freedom (Source: Heritage Foundation)
Free:
Hong Kong, Singapore, New Zealand, , Bahrain, Luxembourg, US,Mostly Free
Canada, Chile, El Salvador, Taiwan
Mostly Unfree
Cambodia. Mexico, Slovak Rep., Slovenia, Swaziland
RepressedNorth Korea, Iraq, Libya, Somalia, Cuba
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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
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Country Income Segmentation
$9,656 High Income (Advanced Countries)-Triad-Others
+ $3,126 Upper Middle Income (NICs)
+ $786 Lower Middle Income (DCs)
< $768 Lower Income (LDCs)
Basket Cases (BCs)
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Global Income & Population 2001
Income GNP(billion)
GNP/Capita
%GNP
Population(Millions)
%Pop.
World $30,251 $4,931 100 6,134 100
High $24,280 $24,693 80 983 16
Up-Mid $2,111 $4,476 7 449 7
Low-Mid $3,150 $1303 10 2,418 39
Low $810 $355 3 2,284 37
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Stages of Market Development
High Income Countries
GNP per capita above $9,656
Norway at $38,070, US at $20,953
Post-Industrial Countries
Importance of service sectormore than 50% of GNP
Ascendancy of knowledge over capital
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Stages of Market Development
Upper Middle Income Countries
GNP per capita between $3,126 and $9,656
CharacteristicsRising wagesHigh rates of literacy
Advanced education
Experience rapidly, export-driven economic growth
Become formidable competitors
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Stages of Market Development
Lower Middle Income Countries
GNP per capita between $785 and $3,125
CharacteristicsEarly stages of industrializationExpanding consumer markets
Major competitive advantage in the production of mature,
standardized, labor-intensive products
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Stages of Market Development
Low Income Countries
Income per capita less than $785
Characteristics
Limited industrializationHigh birth rates
Low literacy rates
Heavy reliance on foreign aid
Political instability
Concentration in Africa, south of the Sahara
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Stages of Market Development
Basket Cases
A country with economic, social & political problemsthat are so serious they make the country unattractive for
investment and operations
Low-income, no-growth countries (E.g.. Ethiopia)
One-time growing & successful countries that have
become divided by political struggles
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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 developedcountries (LDCs)
Upper- middle-income countries = industrializing countries
High-income countries = advanced, industrialized &
postindustrial
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Income and Purchasing Power (1)
IncomeSingle most important indicator of market potential
Purchasing Power ParitiesComparison 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
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Income and Purchasing Power (2)
Top 10 Nations ranked by GNP/Capita (2000)
Luxembourg Japan
Norway DenmarkSingapore United States
Switzerland Hong Kong
Kuwait Austria
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Income and Purchasing Power (3)
Top 10 Nations ranked by GNP/Capita adjusted for
Purchasing Power (PPP)
Luxembourg Switzerland
United States Denmark
Singapore Japan
Norway Belgium
Hong Kong Austria
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The Location of Population
Country Population GNP/Capita % World
(thousands) (thousands) GNP
China 1,268,121 930 3.9India 1,015,287 424 1.4
United States 275,746 29,953 27.3
Indonesia 210,785 1,176 0.7
Brazil 170,661 5,535 2.8
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Marketing & Economic Development
Does marketing play an important role in the economic
development of a country?
Is marketing only relevant to conditions that apply inaffluent, industrialized countries?
The marketing process of focusing an organizations
resources on environmental opportunities is a process
of universal relevance
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Summary
Economic environment is major determinant of
global market potential & opportunity
World economies can be categorized into marketallocation systems, command allocation systems, &
mixed systems
For many products, most important indicator of
market potential is income
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