Economic Integration
Global Economic
Environment
1900- only 10 percent integration
2000- 50 percent integration
– European Union
– NAFTA
– ECOWAS
Chapter 2
Global Marketing- Schrage 2
1
Global Marketing- Schrage 2
New realities
2
Economic Indicators
Gross Domestic
Income
Gross Domestic
Product
Capital movements
replaced trade levels
Production “uncoupled”
from employment
World economy dominatecountry economies are
secondary
End of the
capitalism/socialism
struggle
E-commerce changes all
models
Total market value of
all goods and services
produced within a
nation’s borders
Measure of economic
output
– Business and national
Global Marketing- Schrage 2
3
– Example: money sent
to families in home
countries
– Profits from selling
goods made in another
country in the home
country
Global Marketing- Schrage 2
4
Resource Allocation
Type of economy
Type of government
Trade and capital flows
The commanding heights
State provided services funded by
taxation
Institutional transparency
Free markets/entrepreneurial behavior
Global Marketing- Schrage 2
GDP plus income
generated from nonresident sources
Economic System Structures
Economic Systems
Market
Private
State
5
Global Marketing- Schrage 2
Command
Market
Capitalism
Centrally
Planned
Capitalism
Market
Socialism
Centrally
Planned
Socialism
6
1
Heritage Foundation
Economic Freedom
Free
Mostly Free
Mostly Unfree
– 20 nations (includes US)
– 52 nations
– 73 nations
Repressed
Unrated
Global Marketing- Schrage 2
7
Global Marketing- Schrage 2
Stages of Market
Development
BOP Myths
High-Income Countries
HighGNP > $10,666
Upper-middle
Uppermiddle-income Countries
GNP ≥ $3,256 ≤ $10,065
86% of the
world’s
population
8
Lower-middle
Lowermiddle-income Countries
GNP ≥ $826 ≤ $3,255
Poor have NO money
Poor are too concerned with satisfying basic
needs to “waste” money on non-essential items
Goods sold in developing markets are too
inexpensive for new entrants to make a profit.
Individuals in BOP markets cannot use advanced
technology
Global companies targeting BOP countries will be
criticized for exploiting the poor.
LowLow
-Income Countries
GNP < $825
Global Marketing- Schrage 2
9
Global Marketing- Schrage 2
10
FORTUNE AT THE BOTTOM OF THE PYRAMID, Prahalad
True Nature of BOP
market
Kopeyia, Ghana
There is Money at the BOP
Ease of access to BOP markets
BOP Markets are brand-conscious
– Extremely value conscious
Global Marketing- Schrage 2
11
BOP Market is connected
BOP Customers accept advanced
technology readily
Global Marketing- Schrage 2
12
2
FORTUNE AT THE BOTTOM OF THE PYRAMID, Prahalad
FORTUNE AT THE BOTTOM OF THE PYRAMID, Prahalad
The Market Development
Imperative
Philosophy for Developing
Products and Services
for BOP market
Create the capacity to consume
– Affordability
• Single serve packaging
• Creative purchasing plans
– Access
The basic economics of the
BOP market are based on
small unit packages, low margin
per unit, high volume, and high
return on capital employed.
• Intensity of distribution (walking distance)
– Availability
The Need for New Goods and Services
Dignity and Choice
Trust is a Prerequisite
Global Marketing- Schrage 2
13
Global Marketing- Schrage 2
14
FORTUNE AT THE BOTTOM OF THE PYRAMID, Prahalad
Twelve Principles of
Innovation
Focus on price
performance
Innovation requires hybrid
solutions
Solutions must be
transportable across
countries, cultures, and
languages
Conserve resources-
eliminate, reduce, recycle
Start with understanding
of functionality
Process innovations are
just as critical
Institutions and Groupings
Deskilling work is critical
Education consumers on
product usage
Products must work in
hostile environments
Research on interfaces
given nature of population
Innovations must reach
the consumer
Feature and Function
evolution in BOP markets
can be rapid
Global Marketing- Schrage 2
G8
OECD
The Triad
15
Global Marketing- Schrage 2
Balance of Payments (the
other BOP)
International Finance
Record of economic transaction all
over the world
Current and capital accounts
Just like a company balance sheet
Foreign exchange
– Devaluation
• (one’s currency looses value in comparison
to another)
– Revaluation
– Focus is on trade and cash flow
expenditures
Global Marketing- Schrage 2
16
• Strengthening of currency value in relation
to others
17
Global Marketing- Schrage 2
18
3
FORTUNE AT THE BOTTOM OF THE PYRAMID, Prahalad
BOP = Bottom of the Pyramid
PPPPPP
- Purchasing Power Parity
75 to 100 million people
Tier 1
PPP>$20,000
1,500 to 1,750 million
Tier 2-3
people
PPP $1,500-$20,000
Tier 2
PPP = $1,500
http://www.economist.com/markets/bigmac/
4,000 million people
4,000,000,000
Global Marketing- Schrage 2
19
Tier 5
PPP <$1,500
Global Marketing- Schrage 2
20
Currency Risk
Economic Exposure
Reducing Exposure
– Hedging
– Forward Market
Purchases aircraft from Boeing
– 10% down payment
– Rest upon delivery (5 years later)
• Put option
• Call option
Revenues of JAL in Yen
Payments in USD
In 1985- entered into 10 year forward exchange
contract
– Value of Yen surged against dollar from ¥240 to ¥99 in
1994
– Misjudgment cost JAL 86 percent more per each aircraft.
– Admitted loss of USD 45 million or ¥45 billion
Global Marketing- Schrage 2
21
Global Marketing- Schrage 2
CGBP BOOTCAMP 2008-Chris Schrage
22
22
4