Chapter 2 The Economic Environment

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Principles of

International Marketing

9th Edition

Chapter 2

The EconomicEnvironment


Exhibit 2.1 - The Global Economy


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.


Exhibit 2.3 - World Economic Pyramid



• 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.



• 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.



• 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.



• 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.



• 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.


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


• 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.



• Emotional well-being may be determined by:– Quality of social relationships

– Enjoyment at work

– Job stability

– Overall conditions of the country



Exhibit 2.9 - Forms of Economic Integration in Regional Markets


Levels of Economic Integration

• Free trade area• Customs union• Common market• Economic union• European integration• North American integration• Other economic alliances



• 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.



• 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.



• 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.



• 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.



• 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.


Exhibit 2.10 - Proposed Company Responses to European 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.



• 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.


Regional Economic Integration

• Other economic alliances– Integration in Latin America

– Integration in Asia

– Integration in Africa and the Middle East


Exhibit 2.11 - Major Regional Trade Agreements


Exhibit 2.11 - Major Regional Trade Agreements


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


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:– Adjust entry strategy

– Manage affordability

– Invest in distribution

– Build strong brands


Developing Markets

• Five elements of success required for an international marketer to take advantage of and thrive in developing markets.– Research

– Creating buying power

– Tailoring local solutions

– Improving access

– Shaping aspirations

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Chapter 2 The Economic Environment

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