Emerging Markets Chapter 9 McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved.

Chapter Learning Objectives 1. The political and economic changes affecting global marketing. 2. The connection between the economic level of a country and the marketing task 3. Marketing’s contribution to the growth and development of a country’s economy

Chapter Learning Objectives 5. The political and economic factors that affect stability of regional market groups 4. The growth of developing markets and their importance to regional trade 6. The NIC growth factors and their role in economic development

Introduction Not many years ago, many countries were hostile toward foreign investment and imposed severe regulatory barriers to foreign trade However, now they seek economic growth, improved standards of living, and an opportunity for the good life most people want as part of the global consumer world China, South Korea, Poland, Argentina, Brazil, ­Mexico, and India are some of the countries undergoing impressive changes in their economies and emerging as vast markets.

Marketing and Economic Development The economic level of a country is the single most important environmental element to which the foreign marketer must adjust the marketing task The stage of economic growth within a country affects the attitudes toward foreign business activity, the demand for goods, the distribution systems found within a country, and the entire marketing process Marketing is constantly faced with the challenge of detecting and providing for new levels of consumption, and marketing efforts must be matched with ever-changing market needs and wants. Economic development is generally results in an increase in the average per capita gross domestic product (GDP)

Stages of Economic Development Walt Rostow classified countries by different stages of economic development Each stage is a function of the cost of labor, the technical capability of the buyers, the scale of operations, interest rates, and the level of product sophistication Walt Rostow classified countries by different stages of economic development Each stage is a function of the cost of labor, the technical capability of the buyers, the scale of operations, interest rates, and the level of product sophistication The stages are as follows: Stage 1: The traditional society Stage 2: The preconditions for take-off Stage 3: The take-off Stage 4: The drive to maturity Stage 5: The age of high mass consumption The stages are as follows: Stage 1: The traditional society Stage 2: The preconditions for take-off Stage 3: The take-off Stage 4: The drive to maturity Stage 5: The age of high mass consumption

Stages of Economic Development: United Nations Classification Scheme United Nations classifies a country’s stage of economic development based on its level of industrialization into three categories: (1)MDCs (more-developed countries), e.g., Canada, England, France, Germany, Japan, and the United States. (2) LDCs (less-developed countries), e.g., countries in Asia and Latin America (3) LLDCs (least-developed countries), e.g., countries in Central Africa (1)MDCs (more-developed countries), e.g., Canada, England, France, Germany, Japan, and the United States. (2) LDCs (less-developed countries), e.g., countries in Asia and Latin America (3) LLDCs (least-developed countries), e.g., countries in Central Africa

Countries that are experiencing rapid economic expansion and industrialization and do not exactly fit as LDCs or MDCs are more typically referred to as newly industrialized countries (NICs), e.g., Chile, Brazil, Mexico, South Korea, Singapore, and Taiwan NIC Growth Factors Some factors that contributed to economic growth of NICs are: 1.Political stability in policies affecting their development 2.Economic and legal reforms 3.Entrepreneurship 4.Planning 5.Outward orientation 6.Factors of production 7.Privatization of state-owned enterprises (SOEs)

Information Technology, the Internet, and Economic Development In addition to the growth factors previously discussed, a country’s investment in information technology (IT) is an important key to economic growth. The cellular phone, the Internet, and other advances in IT open opportunities for emerging economies to catch up with richer ones. New, innovative electronic technologies can be the key to a sustainable future for developed and developing nations alike. Mobile phones and other wireless technologies greatly reduce the need to lay down a costly telecom infrastructure to bring telephone service to areas not now served. The Internet allows for innovative services at a relatively inexpensive cost.

Infrastructure and Development One indicator of economic development is the extent of social overhead capital, or infrastructure, within the economy. Countries begin to lose economic development ground when their infrastructure cannot support an expanding population and economy Infrastructure represents those types of capital goods that serve the activities of many industries. Included in a country’s infrastructure are paved roads, railroads, seaports, communications networks, and energy supplies—all necessary to support production and marketing Infrastructure represents those types of capital goods that serve the activities of many industries. Included in a country’s infrastructure are paved roads, railroads, seaports, communications networks, and energy supplies—all necessary to support production and marketing

Marketing in a Developing Country A marketer cannot superimpose a sophisticated marketing strategy on an underdeveloped economy In evaluating the potential in a developing country, the marketer must make an assessment of the existing level of market development within the country A marketer cannot superimpose a sophisticated marketing strategy on an underdeveloped economy In evaluating the potential in a developing country, the marketer must make an assessment of the existing level of market development within the country The level of market development roughly parallels the stages of economic development As countries develop, the distribution and channel systems develop and mom-and-pop stores give way to larger establishments Advertising agencies, facilities for marketing research, repair services, specialized consumer-financing agencies, and storage and warehousing facilities are facilitating agencies created to serve the particular needs of expanded markets and economies The level of market development roughly parallels the stages of economic development As countries develop, the distribution and channel systems develop and mom-and-pop stores give way to larger establishments Advertising agencies, facilities for marketing research, repair services, specialized consumer-financing agencies, and storage and warehousing facilities are facilitating agencies created to serve the particular needs of expanded markets and economies

Developing Countries and Big Emerging Markets Big emerging markets share a number of important traits as follows: 1.Are all physically large 2.Have significant populations 3.Represent considerable markets for a wide range of products 4.Have strong rates of growth or the potential for significant growth 5.Have undertaken significant programs of economic reform 6.Are of major political importance within their regions 7.Are “regional economic drivers” 8.Will engender further expansion in neighboring markets as they grow

Strategic Implications for Marketing As a country develops, incomes change, population concentrations shift, expectations for a better life adjust to higher standards, new infrastructures evolve, and social capital investments are made Market behavior changes and eventually groups of consumers with common tastes and needs (i.e., market segments) arise When incomes rise, new demand is generated at all income levels for everything from soap to automobiles This means that knowledge of stage of market development is important in helping to develop marketing strategies that are tailored to the level of economic development