DRIVING FORCES AFFECTING GLOBAL INTEGRATION & GLOBAL
MARKETGING
Multilateral economic agreements
Converging market needs & the
information revolution
Transportation & communication
improvements
Product development costs
p. 56
DRIVING FORCES AFFECTING GLOBAL INTEGRATION & GLOBAL
MARKETGING
Quality
World economic trends
Leverage
p. 59
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.
Converging market needs & the
information revolution
Information revolution
Transportation & Communication
improvements
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
Quality

Global marketing strategies generate greater
opportunities and greater revenue which
intern support design and manufacturing
quality.
World
Economic
Trends
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
Leverage
Global strategy.
• The global company's
greatest single advantage
can be its global strategy.
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
• Three 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
1-19
The Global Economic
Environment
Chapter 2
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
2-21
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
2-22
5 important changes in the World
Economy
1.
2.
3.
4.
5.
Capital movements have replaced trade as the
driving force of the world economy
Production has become uncoupled from employment
The world economy, not individual countries, is the
dominating factor
75-year struggle between capitalism and socialism
has almost ended
E-commerce diminishes the importance of national
barriers and forces companies to reevaluate business
models
2-23
Economic Systems
Resource Allocation
Market
Private
Market
capitalism
Centrally
planned
capitalism
Market
socialism
Centrally
planned
socialism
Resource
Ownership
State
Command
2-24
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
2-25
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.
2-26
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%
2-27
Economic Freedom
• Rankings of economic freedom among countries
– free, mostly free, mostly unfree, repressed
• Variables considered include such things as:
– Trade policy
– Taxation policy
– Capital flows and foreign investment
– Banking policy
– Wage and price controls
– Property rights
– Black market
2-28
Economic Freedom
•
Free
1.
2.
3.
4.
5.
7.
8.
9.
Hong Kong
Singapore
Ireland
Luxembourg
Iceland/U.K.
Estonia
Denmark
Australia/New
Zealand/United States
•
Repressed
150.
151.
152.
153.
154.
155.
156.
Cuba
Belarus
Libya/Venezuela
Zimbabwe
Burma
Iran
North Korea
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
•
•
•
•
Tipa S. 1/2011
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
RANK
Country
World
European Union
1 United States
GDP
(millions of
USD)
62,909,274
16,282,230
14,657,800
2 People's Republic of China
5,878,257
3 Japan
5,458,872
4 Germany
3,315,643
5 France
2,582,527
6 United Kingdom
2,247,455
7 Brazil
2,090,314
8 Italy
2,055,114
9 Canada
1,574,051
10 India
1,537,966
11 Russia
1,465,079
12 Spain
1,409,946
13 Australia
1,235,539
14 Mexico
1,039,121
15 South Korea
1,007,084
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
India is the only BRIC country
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
• BRIC nations are China and Brazil
2-34
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: Malaysia, Chile, Venezuela, Hungary, Ecuador
2-35
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
2-36
Mistaken Assumptions About LDCs
1. The poor have no money.
2. The poor will not “waste” money on non-essential
goods.
3. Entering developing markets is fruitless because
goods there are too cheap to make a profit.
4. People in BOP (bottom of the pyramid) countries
cannot use technology.
5. Global companies doing business in BOP countries
will be seen as exploiting the poor.
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
2-38
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
2-39
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
2-40
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
•
•
•
•
30 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
2-42
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
2-43
Product Saturation Levels
• The percentage of potential buyers or
households who own a product
• India: 1% of people have telephones
• Autos: 1 per 20,000 Chinese; 21 per 100
Poles; 49 per 100 EU citizens
• Computers: 1 PC per 6,000 Chinese; 11 PCs
per Poles; 34 PCs per EU citizen
2-44
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
2-45
Balance of Payments
2-46
Top Exporters in 2004
• See Tables 2-7 and 2-8
2-47
Top Importers in 2004
• See Tables 2-7 and 2-8
2-48
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
2-49
Foreign Exchange Market Dynamics
•
Supply and demand interaction
–
–
–
Country sells more goods/services than it buys
There is a greater demand for the currency
The currency will appreciate in value
Exchange risks and gains in foreign transactions
2-50
Purchasing Power Parity (PPP)
The Big Mac Index
• Is a certain currency over-/under-valued compared to another?
• Assumption is that the Big Mac in any country should equal the price
of the Big Mac in the United States after being converted to a dollar
price
2-51
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
2-52
Managing Economic Exposure
• Numerous techniques and strategies have
been developed to reduce exchange rate risk
– Hedging involves balancing the risk of loss in one
currency with a corresponding gain in another
currency
– Forward contracts set the price of the exchange
rate at some point in the future to eliminate some
risk
2-53
Looking Ahead to Chapter 3
• The global trade environment
2-54