Principles of
International
Marketing
Chapter 2
The Economic
Environment
9th Edition
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Exhibit 2.1 - The Global Economy
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Market Characteristics
• Population
– Population figures can be classified to show specific
characteristics of their respective markets.
– Age distribution and life expectancy correlate heavily
with the level of development of the market.
– A household describes all the persons, both related
and unrelated, who occupy a housing unit.
– The degree of urbanization dictates the nature of the
marketing task the company faces, in terms of
distribution, market potential, and buying habits.
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Exhibit 2.3 - World Economic Pyramid
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Market Characteristics
• Income
– Income-distribution can be classified as very low family
incomes, very low, very high family incomes, low,
medium, high family income, and mostly medium
family incomes.
– Per capita GDP is often used as a primary indicator for
evaluating purchasing power.
– Purchasing power parities (PPP) show how many units
of currency are needed in one country to buy the
amount of goods and services that one unit of currency
will buy in another country.
© 2010 South-Western/Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Market Characteristics
• Income
– Income figures are useful in the initial screening of
markets; however, in product-specific cases, income
may not play a major role.
– The lack of income in a market may preclude the
marketing of a standardized product but, at the same
time, provide an opportunity for an adjusted product.
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Market Characteristics
• Consumption patterns
– Engel’s laws - As a family’s income increases, the
percentage spent on food will decrease, the
percentage spent on housing and household
operations will be roughly constant, and the amount
saved or spent on other purchases will increase.
– Product saturation or diffusion provides information on
the percentage of households in a market that own a
particular product.
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Market Characteristics
• Consumption patterns
– General consumption figures must be viewed with
caution as they may conceal critical product-form
differences.
– Inflation affects the buying ability of both industrial
customers and consumers, and also introduces
uncertainty into both the marketer’s planning process
and consumers’ buying habits.
© 2010 South-Western/Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Market Characteristics
• Infrastructure
– Transportation networks by land, rail, waterway, or air
are essential for distribution.
– Communication systems for marketing include
telephones, computers, broadcast media, print media,
internet, and wireless technology.
– The more extensive the firm’s international
involvement, the more it can rely on its already existing
support network of banks, advertising agencies, and
distributors to assess new markets.
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Impact of the Economic Environment on
Social Development
• Factors impeding economic growth:
–
–
–
–
–
–
Infrastructure limits
Labor shortages
Demand for greater political freedom
Environmental destruction
Urban congestion
Spread of drug addiction
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Impact of the Economic Environment on
Social Development
• Physical Quality of Life Index (PQLI)
– Is a composite measure of the level of welfare in a
country.
– Is composed of life expectancy, infant mortality, and
adult literacy rates.
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Impact of the Economic Environment on
Social Development
• Emotional well-being may be determined by:
–
–
–
–
Quality of social relationships
Enjoyment at work
Job stability
Overall conditions of the country
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Exhibit 2.9 - Forms of Economic Integration
in Regional Markets
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Levels of Economic Integration
•
•
•
•
•
•
•
Free trade area
Customs union
Common market
Economic union
European integration
North American integration
Other economic alliances
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Levels of Economic Integration
• Free trade area
– Eliminates tariff and quota barriers among member
countries.
– Each country is free to set its own tariff and quota
barriers against nonmember countries.
– Is sometimes formed only for certain classes of goods
or services.
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Levels of Economic Integration
• Customs union
– Tariff and quota barriers among member countries are
eliminated.
– Establishes a common trade policy with respect to
nonmembers, which takes the form of a common
external tariff, whereby imports from nonmembers are
subject to the same tariff when sold to any member
country.
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Levels of Economic Integration
• Common market area
– Covers the exchange of goods and services, prohibits
duties in exports and imports between members, and
adopts a common external tariff with respect to
nonmembers.
– Factors of production are mobile among members.
– Abolishes restrictions on immigration and cross-border
investment.
– Members must cooperate closely in monetary, fiscal,
and employment policies.
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Levels of Economic Integration
• Economic union
– Requires integration of economic policies in addition to
the free movement of goods, services, and factors of
production across borders.
– Harmonizes taxation, government spending, and
monetary policies.
– Establishes a common currency for members.
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Levels of Economic Integration
• European integration
– Results in economic growth; sources of growth being:
• Elimination of transaction costs.
• Economies of scale attained as production becomes
concentrated.
• More intense competition from European companies.
– Operations from one country can be freely expanded to
other countries.
– There is a “Fortress Europe” fear.
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Exhibit 2.10 - Proposed Company
Responses to European Integration
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Levels of Economic Integration
• North American integration
– Is for purely economic reasons.
– There are no constituencies for political integration.
– The ratification of the North American Free Trade
Agreement (NAFTA) created the world’s largest free
market, with 450 million consumers and a total output
of $15.7 trillion.
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Levels of Economic Integration
• North American integration
– Distinctive features of NAFTA are the two-side
agreements to correct perceived abuses in labor and
the environment in Mexico.
– Introduction of maquiladoras.
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Regional Economic Integration
• Other economic alliances
– Integration in Latin America
– Integration in Asia
– Integration in Africa and the Middle East
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Exhibit 2.11 - Major Regional Trade
Agreements
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Exhibit 2.11 - Major Regional Trade
Agreements
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Regional Economic Integration
• Economic integration and the international marketer
– Regional economic integration creates opportunities
and potential problems for the international marketer.
– Decisions regarding integrating markets must be
assessed from four different perspectives:
•
•
•
•
Effects of change
Strategic planning
Reorganization
Lobbying
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Emerging Markets
• Emerging markets - A country making an effort to
change and improve its economy with the goal of
raising its performance to that of the world’s most
advanced nations.
• Strategies adopted by marketers to thrive in
emerging markets:
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–
–
–
Adjust entry strategy
Manage affordability
Invest in distribution
Build strong brands
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Developing Markets
• Five elements of success required for an international
marketer to take advantage of and thrive in
developing markets.
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–
–
–
–
Research
Creating buying power
Tailoring local solutions
Improving access
Shaping aspirations
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