PP 02 Economics

8/2/2019 PP 02 Economics

1/28

Global Marketing Management

Warren J. Keegan

Chapter 2 Global Economic

Environment


2/28

Keegan: Global Marketing Management Chapter 2/ 2

Overview

The World EconomyAn OverviewEconomic SystemsStages of Market DevelopmentStages of Economic Development

Income and Purchasing Power ParityThe Location of PopulationMarketing and Economic DevelopmentBalance of Payments

Trade PatternsSummary


3/28


Learning Objectives

Understand the main differences between economic

systems found around the world

Learn ways of classifying countries by their marketdevelopment

Understand consumption patterns in different countries

Know the main regional economic co-operation

agreements


4/28


5/28


Economic Systems

Three types of economic systems:Capitalist

Socialist

Mixed

Classification based on dominant method of resource

allocation

Market allocationCommand allocation

Mixed system


6/28


Economic SystemsMarket

Allocation

Relies upon consumers to allocate resources

Role of statePromote competition

Ensure consumer protection

Predominately market economies:US, Western European Countries, Japan


7/28


Economic SystemsCommand

Allocation

State has broad powers to serve public interestDecides which products to make

Decides how to make them

Elements of marketing mix are not used as strategic

variables

Countries that relied upon command allocation systemsfor decades: China, former USSR, India


8/28


9/28


Economic Systems

Index of Economic Freedom (Source: Heritage Foundation)

Free:

Hong Kong, Singapore, New Zealand, , Bahrain, Luxembourg, US,Mostly Free

Canada, Chile, El Salvador, Taiwan

Mostly Unfree

Cambodia. Mexico, Slovak Rep., Slovenia, Swaziland

RepressedNorth Korea, Iraq, Libya, Somalia, Cuba


10/28


Stages of Market Development

Countries/markets are at different stages of development

GNP per capita provides a useful way of grouping

countries into 5 categories

Categories are a useful basis for:Market segmentation

Target marketing


11/28


Country Income Segmentation

$9,656 High Income (Advanced Countries)-Triad-Others

+ $3,126 Upper Middle Income (NICs)

+ $786 Lower Middle Income (DCs)

< $768 Lower Income (LDCs)

Basket Cases (BCs)


12/28


Global Income & Population 2001

Income GNP(billion)

GNP/Capita

%GNP

Population(Millions)

%Pop.

World $30,251 $4,931 100 6,134 100

High $24,280 $24,693 80 983 16

Up-Mid $2,111 $4,476 7 449 7

Low-Mid $3,150 $1303 10 2,418 39

Low $810 $355 3 2,284 37


13/28


14/28



High Income Countries

GNP per capita above $9,656

Norway at $38,070, US at $20,953

Post-Industrial Countries

Importance of service sectormore than 50% of GNP

Ascendancy of knowledge over capital


15/28



Upper Middle Income Countries

GNP per capita between $3,126 and $9,656

CharacteristicsRising wagesHigh rates of literacy

Advanced education

Experience rapidly, export-driven economic growth

Become formidable competitors


16/28



Lower Middle Income Countries

GNP per capita between $785 and $3,125

CharacteristicsEarly stages of industrializationExpanding consumer markets

Major competitive advantage in the production of mature,

standardized, labor-intensive products


17/28



Low Income Countries

Income per capita less than $785

Characteristics

Limited industrializationHigh birth rates

Low literacy rates

Heavy reliance on foreign aid

Political instability

Concentration in Africa, south of the Sahara


18/28



Basket Cases

A country with economic, social & political problemsthat are so serious they make the country unattractive for

investment and operations

Low-income, no-growth countries (E.g.. Ethiopia)

One-time growing & successful countries that have

become divided by political struggles


19/28


Stages of Economic Development

Stages of market development based on GNP per capita

correspond with the stages of economic development

Low & lower-middle-income countries = less developedcountries (LDCs)

Upper- middle-income countries = industrializing countries

High-income countries = advanced, industrialized &

postindustrial


20/28


Income and Purchasing Power (1)

IncomeSingle most important indicator of market potential

Purchasing Power ParitiesComparison of goods & services that can be bought with local

currency in different countries

Gross National Product (GNP)Sum of the money values of all final goods & services produced

during a year


21/28

Keegan: Global Marketing ManagementChapter 2/ 21


Top 10 Nations ranked by GNP/Capita (2000)

Luxembourg Japan

Norway DenmarkSingapore United States

Switzerland Hong Kong

Kuwait Austria


22/28



Top 10 Nations ranked by GNP/Capita adjusted for

Purchasing Power (PPP)

Luxembourg Switzerland

United States Denmark

Singapore Japan

Norway Belgium

Hong Kong Austria


23/28


The Location of Population

Country Population GNP/Capita % World

(thousands) (thousands) GNP

China 1,268,121 930 3.9India 1,015,287 424 1.4

United States 275,746 29,953 27.3

Indonesia 210,785 1,176 0.7

Brazil 170,661 5,535 2.8


24/28


Marketing & Economic Development

Does marketing play an important role in the economic

development of a country?

Is marketing only relevant to conditions that apply inaffluent, industrialized countries?

The marketing process of focusing an organizations

resources on environmental opportunities is a process

of universal relevance


25/28


26/28


27/28


28/28


Summary

Economic environment is major determinant of

global market potential & opportunity

World economies can be categorized into marketallocation systems, command allocation systems, &

mixed systems

For many products, most important indicator of

market potential is income

Documents

PP 02 Economics