Notes on The Economic Environment for Global Marketing
The World Economy
There are some significant features of the World Economy:

Previously the most important transactions were in goods (‘visibles’) but now the
services (‘invisibles’) sector has come to the fore in developed countries.

There has been a decline in the numbers of people employed in manufacturing, while the
volume of production continues to grow.

The disappearance of the traditional relationship between raw material prices and the
state of the industrialised economics, where a fall in raw material prices is no longer
associated with recession in the more advanced economics
The theory of competitive advantage
This theory looks at where one country is better at the production of one good and trades that
good with a country that is better at the production of another.
The word ‘better’ is the issue within this theory, since it is possible that one of these countries
may be more efficient in producing both products, but when one compares the comparative
advantage within the production of the two products, one country may be ‘better’ than the
other.
The macro-economic objectives
Most economies set objectives that they try to achieve. These generally include:

an increase in national income or economic growth

a balance of payments

full employment

stable prices.
There are a number of tools available to governments to guide an economy. These include:

monetary policy which is concerned with interest rates and the money supply

fiscal policy which uses taxation and government spending to achieve the above
objectives.
National income
When considering the implications of the economic environment on global marketing the
single most important factor is national income.
Because it is so important there are a number of different ways of calculating the value of a
country’s flow of goods and services. Here is a typical process:

GDP plus GNP minus Capital Consumed equals National Income.
Balance of payments
The balance of payments is a record of trade with another country. It is usually broken down
into sections so that it is possible to look at the trade in goods, services and capital.
The nature of the balance will depend on whether the currency is Floating or Fixed.
Full employment
Most countries try to achieve full employment for economic, political and social reasons,
although it is not strictly achievable because some people will be unemployable, some will be
between jobs and some will refuse to work.
Average incomes will be lower and markets for many products will be of a lower value.
On the more positive side, unemployment allows a country to expand more rapidly before
inflation takes a hold.
Stable prices
Rising prices (inflation) or falling prices (deflation) add another element of uncertainty into
the equation when considering whether to invest in a country or not.
Free trade
Free trade between nations permits international specialisation, and enables a firm to
increase output without being limited by the size of domestic market.
This in turn may lead to economies of large-scale production, a decrease in long run average costs.
Barriers to free trade include:

Tariffs/Import duties

Quotas

Voluntary export restrictions

Exchange control and Import Licenses

‘Invisible’ barriers.
Regional trading groups
For various reasons, countries get together to promote trade with each other. These regional
trading groups take three forms:
1.
Free trade areas.
2.
Customs unions.
3.
Economic unions/common markets.
Major trade and economic organisations
There are five major groupings:
1.
World Trade Organisation (WTO)
2.
Organisation for Economic Co-operation and Development (OECD)
3.
World Bank (WB)
4.
International Monetary Fund (IMF)
5.
‘G8’
European Economic and Monetary Union
European Economic and Monetary Union (EMU) is a long-standing objective of the EU,
reaffirmed in the Single European Act of 1985 and in the Maastricht agreement of 1991.
EMU has three main aspects:
1.
A common currency
2.
A European central bank
3.
A centralised monetary policy
Economic structure and development
Commonly used factors in classifying countries include:

Infrastructure (e.g. the development of roads, transport, communications and energy
distribution).

Education and literacy levels.

Ownership of durables (e.g., telephone, TV, fridge, etc. as appropriate).

GDP (Gross Domestic Product) per head. This, effectively, is the value of goods and
services produced within the economy.
Generally each country can be classified under one of five headings:
1.
Lesser Developed Country (LDC)
2.
Early developed country (EDC)
3.
Semi-developed country (SDC)
4.
Fully developed country (FDC)
5.
Former Eastern Bloc country (EBC)
Measuring levels of economic development
Measures that may be used by the international marketer include the following:

GDP per head.

Source of GDP (primary, secondary or tertiary sector based economy).

Living standards (ownership of key durables may be used as a surrogate measure).

Energy availability and usage.

Education levels.

Environmental issues are becoming more important since the Rio Summit.
Identifying market size
The economic worth of a consumer market is based on the following general factors:

The number of people in the market.

Their desire to own the goods.

Their ability to purchase the goods.
Thus in measuring a market, the marketer will obtain information on the following:

Population.

Income.

Consumption patterns.

Debt and inflation.

Physical environment.

Foreign trade.