DRIVING FORCES AFFECTING GLOBAL INTEGRATION & GLOBAL
MARKETGING
Multilateral economic agreements
p. 56
Multilateral Agreements
NAFTA
The North American Free Trade Agreement or NAFTA is an
agreement signed by the governments of Canada, Mexico, and the
United States, creating a trilateral trade bloc in North America.
The agreement came into force on January 1, 1994.
In terms of combined GDP of its members, as of 2010, the trade
bloc is the largest in the world.
ASEAN
The Association of Southeast Asian Nations, commonly abbreviated ASEAN is a geo-political
and economic organization of ten countries located in Southeast Asia, which was formed on 8
August 1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand.
Since then, membership has expanded to include Brunei, Burma (Myanmar), Cambodia, Laos,
and Vietnam.
Its aims include the acceleration of economic growth, social progress, cultural development
among its members, the protection of the peace and stability of the region, and to provide
opportunities for member countries to discuss differences peacefully.
ASEAN- Other Countries
ASEAN has concluded free trade agreements with PR China, Korea, Japan, Australia, New
Zealand and most recently India.
The agreement with People's Republic of China created the ASEAN–China Free Trade Area
(ACFTA), which went into full effect on January 1, 2010. In addition, ASEAN is currently
negotiating a free trade agreement with the European Union.
DRIVING FORCES AFFECTING GLOBAL INTEGRATION &
GLOBAL MARKETGING
• Converging market needs & the information
revolution
Converging market needs & the
information revolution
Information revolution
DRIVING FORCES AFFECTING GLOBAL INTEGRATION & GLOBAL
MARKETGING
Transportation & communication
improvements
Transportation & Communication
improvements
DRIVING FORCES AFFECTING GLOBAL INTEGRATION &
GLOBAL MARKETGING
• Product development costs
Product development costs




Cost of developing a new drug in 1976- $54M
Cost of developing a new drug in 2009-$400
Million
Such huge investments can be recovered
only in global market place.
Refer Table 1-10 on Page 58
DRIVING FORCES AFFECTING GLOBAL INTEGRATION & GLOBAL
MARKETGING
Quality
p. 59
Quality

Global marketing strategies generate greater
opportunities and greater revenue which
intern support design and manufacturing
quality.
DRIVING FORCES AFFECTING GLOBAL INTEGRATION & GLOBAL
MARKETGING
World economic trends
World Economic
Trends
DRIVING FORCES AFFECTING GLOBAL INTEGRATION & GLOBAL
MARKETGING

Leverage
Leverage


Global companies possess the unique
opportunities to develop leverage.
It means the type of advantage that a
company enjoys by virtue of the fact that it
has experience in more than one country.




Experience transfer
Scale of Economies
Resource Allocation
Global strategy
Leverage: Experience Transfers
A global company can leverage its
experience in any market in the
world.
It can draw on management
practices, strategies, products,
advertising appeals, or sales or
promotional ideas that have been
tested in actual markets and apply
them in other comparable markets.
ABB- 1400 subsidiaries in 140 countries.
Very famous for running the operations with the
minimum number of staff
Leverage: Scale of Economies
The
global company can take
advantage of its greater manufacturing
volume to obtain traditional scale
advantages within a single factory.
Also, finished products can be
produced by combining components
manufactured in scale-efficient plants in
different countries.
The larger scale of the global company
also creates opportunities to improve
corporate staff competence and quality.
Leverage : Resource Allocation
A major strength of the global company
is its ability to scan the entire world to
identify people, money, and raw
materials that will enable it to compete
most effectively in world markets.
Global companies utilizes the
resources where there is the greatest
opportunity to serve a need at a profit
RESTRAINING FORCES AFFECTING GLOBAL INTEGRATION &
GLOBAL MARKETGING
Management myopia & Organizational
culture
Opposition to globalization
National controls – (to protect
local industries)
p. 62
Management myopia

Management ignores
(will not see) the
opportunities to peruse
global marketing.

Global marketing does not
work without a strong local
team that can provide
information about the local
market conditions.
Summary
• Global marketing is the process of focusing
resources on global marketing opportunities
• Goal is to create customer value &
competitive advantage by maintaining focus
• FOUR classifications of management
orientation: ethnocentric, polycentric,
regiocentric, geocentric
• Global marketing importance is shaped by a
variety of driving & restraining forces
Looking Ahead to Chapter 2
The global economic
environment
1-23
Introduction
• This chapter includes
–
–
–
–
An overview of the world economy
A survey of economic system types
The stages of market development
The balance of payments
2-24
The World Economy—An Overview
• In the early twentieth
century economic
integration was at 10%;
today it is 50%
• EU and NAFTA are very
integrated
• Global competitors
have displaced or
absorbed local ones
2-25
Economic Systems
Resource Allocation
Market
Private
Market
capitalism
Centrally
planned
capitalism
Market
socialism
Centrally
planned
socialism
Resource
Ownership
State
Command
2-26
Market Capitalism




Individuals and firms allocate resources
Production resources are privately owned
Driven by consumers
Government’s role is to promote competition
among firms and ensure consumer protection
Eg: United States
2-27
Centrally Planned Socialism
• Opposite of market capitalism
• State holds broad powers to serve the public
interest; decides what goods and services are
produced and in what quantities
• Government owns entire industries and controls
distribution
• Demand typically exceeds supply
• Eg: North Korea, Venezuela etc.
2-28
Centrally Planned Capitalism
• Economic system in which command resource
allocation is used extensively in an
environment of private resource ownership
• Examples
– Sweden
– Japan
INDUSTRY SECTOR
STATE OWNERSHIP
Telecom
45%
Airline
21%
Banking
20%
Alcohol
100%
2-29
13
Stages of Economic Development (p. 80-93)
BIG EMERGING MARKETS (BEMs)
•
•
•
•
•
•
•
•
•
•
China
India
Indonesia
South Korea
Brazil
Mexico
Argentina
South Africa
Poland
Turkey
BRIC
•
•
•
•
Brazil
Russia
India
China
BRIC
• Since the four BRIC countries
are developing rapidly, by
2050 their combined
economies could eclipse the
combined economies of the
current richest countries of
the world.
• These four countries,
combined, currently account
for more than a quarter of the
world's land area and more
than 40% of the world's
population.
WORLD’S TOP ECONOMIES
Low-Income Countries
• GNP per capita of $825 or less
• Characteristics
–
–
–
–
–
–
–
Limited industrialization
High percentage of population involved in farming
High birth rates
Low literacy rates
Heavy reliance on foreign aid
Political instability and unrest
Concentrated in Sub-Saharan Africa
2-33
Lower-Middle-Income Countries
• GNI per capita: $826 to $3,255
• Characteristics
– Rapidly expanding consumer markets
– Cheap labor
– Mature, standardized, labor-intensive industries
like textiles and toys
• India is the only BRIC Country
2-35
Upper-Middle-Income Countries
• GNP per capita: $3,256 to $10,065
• Characteristics
–
–
–
–
–
Rapidly industrializing, less agricultural employment
Increasing urbanization
Rising wages
High literacy rates and advanced education
Lower wage costs than advanced countries
• Also called newly industrializing economies (NIEs)
• Examples: BRCI COUNTRIES ARE BRAZIL, RUSSIA &
CHINA
2-37
High-Income Countries
• GNI per capita: $10,066 or more
• Also know as advanced, developed,
industrialized, or postindustrial countries
• Characteristics
– Sustained economic growth through disciplined
innovation
– Service sector is more than 50% of GNI
2-39
High-Income Countries
– Importance of information processing and
exchange
– Ascendancy of knowledge over capital, intellectual
over machine technology, scientists and
professionals over engineers and semiskilled
workers
– Future oriented
– Importance of interpersonal relationships
2-40
High Income countries
High Income countries (Contd..)
Marketing Opportunities in LDCs
• Characterized by a shortage of goods and services
• Long-term opportunities must be nurtured in these
countries
–
–
–
–
Look beyond per capita GNP
Consider the LDCs collectively rather than individually
Consider first mover advantage
Set realistic deadlines
2-43
G-8, the Group of Eight
• Goal of global economic stability and prosperity
–
–
–
–
–
–
–
–
United States
Japan
Germany
France
Britain
Canada
Italy
Russia (1998)
2007 G-8 leaders in Germany
2-44
Assignment-2
• Study about the Association of South East
Asian Nations (ASEAN) and its marketing
issues and opportunities.
• Submit the assignment in the class and one
group shall present the topic in the class.
OECD, the Organization for Economic
Cooperation and Development
•
•
•
•
34 nations
Post–World War II European origin
Canada, United States (1961), Japan (1964)
Promotes economic growth and social wellbeing
• Focuses on world trade, global issues, labor
market deregulation
2-46
THE OECD
The Triad
• United States, Western Europe, and Japan
• Represents 75% of world income
• Expanded triad includes all of North America
and the Pacific Rim and most of Eastern
Europe
• Global companies should be equally strong in
each part
2-48
Balance of Payments
• Record of all economic transactions between
the residents of a country and the rest of the
world
– Current account—record of all recurring trade in
merchandise and services, and humanitarian aid
• Trade deficit—negative current account
• Trade surplus—positive current account
– Capital account—record of all long-term direct
investment, portfolio investment, and capital flows
2-49
International
finance: An
Overview
Overview of International Finance
• Foreign exchange makes it possible to do
business across the boundary of a national
currency
• Currency of various countries are traded for
both immediate (spot) and future (forward)
delivery
• Currency risk adds turbulence to global
commerce
2-51
•
•
•
•
Balance of
Payments
A balance of payments (BOP) sheet is an
accounting record of all monetary
transactions between a country and the
rest of the world.
These transactions include payments for
the country's exports and imports of
goods, services, and financial capital, as
well as financial transfers.
Sources of funds for a nation, such as
exports or the receipts of loans and
investments, are recorded as positive or
surplus items.
Uses of funds, such as for imports or to
invest in foreign countries, are recorded
as negative or deficit items.
Balance of Payments
The BOP is divided into 2 accounts
• The Current account
• The Capital account
The Current Account:
• A broad measure that includes merchandise trade and
service trade.
The Capital Account
• A record of all long term direct investment, portfolio
investment and other short term, long term capital flows
• Refer Table 2.5 @ Page 93
Balance of Payments-Thailand
Bank of Thailand
EC_XT_010 : Balance of Payments (Summary)
(Unit : Millions of Baht)
Last Updated : 31 May 2011 14:32
Retrieved date : 08 Jun 2011 13:43
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Source:
Bank of Thailand
Exports (f.o.b.)
(% change)
Imports (c.i.f.)
(% change)
Trade balance
Net services income & transfers
Current account balance
Capital and financial account
Monetary authorities
Government
Bank
Others
Net errors & omissions
Balance of payments
2010
2009
2008
2007
6,120,927.59
5,155,054.37
5,831,085.78
5,212,208.04
18.73
-11.59
11.87
7.72
-5,681,327.14
-4,485,935.34
-5,845,351.76
-4,773,127.13
26.64
-23.25
22.46
-0.64
439,600.44
669,119.03
-14,265.97
439,080.90
23,963.61
85,355.33
81,646.47
100,623.25
463,564.05
754,474.37
67,380.49
539,704.16
503,431.31
-101,685.89
399,828.21
-61,663.39
82,631.52
50,005.17
1,096.65
-21,482.93
103,993.24
19,493.87
-15,461.11
-77,645.54
307,032.24
260,686.92
348,808.59
-46,582.40
9,774.29
-431,871.87
65,384.08
84,047.48
19,630.25
171,811.71
344,640.05
108,377.76
986,625.62
824,600.18
811,848.77
586,418.54
Purchasing Power Parity(PPP)
• Purchasing power parity (PPP)
is a theory of long-term
equilibrium exchange rates
based on relative price levels of
two countries.
• The concept is founded on the
law of one price, the idea that
in absence of transaction costs
and official barriers to trade,
identical goods will have the
same price in different
markets when the prices are
expressed in terms of one
currency.
3-55
Purchasing Power Parity(PPP)
• A country’s currency is overvalued if the Big Mac price
(Converted to dollars) is higher than in the US.
• A country’s currency is undervalued if the converted Big Price is
lower than the US price.
3-56
Managing Economic Exposure
• Economic exposure refers to the impact of currency
fluctuations on the present value of the company’s
future cash flows
• Two categories of economic exposure
– Transaction exposure is from sales/purchases
– Real operating exposure arises when currency fluctuations,
together with price changes, alter a company’s future
revenues and costs
2-58
Managing Exchange rate Exposure
• Hedging
– Forward & Future
Markets
– Options
• Call
• Put
3-59
Hedging
• Hedging exchange rate
exposure involves
establishing an
offsetting currency
position such that the
loss or gain of one
currency position is
offset by a
corresponding gain or
loss in some other
currency.
3-60
Forwards
• With a forward
contract, the company
can lock in a specific
fixed exchange rate for
a future date and thus
immunize itself from
the loss ( or gain)
caused by the
exchange rate
fluctuation.
In addition to spot prices, 30-, 60- and
180 day forward prices are traded for
3-61dozens of world currencies.
Put Options
• Gives the Holder the
right,(not obligation)
to sell a specified
number of foreign
currency units at a
fixed price until the
options expiration
date.
3-62
Call Options
 Gives the holder the
right,(not obligation)
to buy a specified
number of foreign
currency units at a
fixed price until the
options expiration
date.
3-63
Looking Ahead to Chapter 3
• The global trade environment
2-64