1 THE GLOBAL MARKETING ENVIRONMENT Sunarto Prayitno

2 1. Introduction The macro dimensions of the environment are economic, social and cultural, political and legal, and technological. Each is important, but perhaps the single most important characteristic of the global market environment is the economic dimension. With money, all thinks (well, almost all!) are possible. Without money, many thinks are impossible for the marketer.

3 1. Introduction Today, in contrast to any previous time in the history of the world, there is global economic growth. For the first time in the history of global marketing, markets in every region of the world are potential targets for almost every company from high tech to low tech, across the spectrum of products from basic to luxury. Indeed, the fastest-growing markets, as we shall see, are in countries at earlier stages of development.

4 1. Introduction The global marketer is fortunate in having a substantial body of data available that charts the nature of the environment on a country-by-country basis. Each country has national accounts data, indicating estimates of gross national product, gross domestic product, consumption, investment, government expenditures, and price level. Also distribution by age category, and rate population growth.

5 1. Introduction These data are available for all high-income countries. The less developed a country is, the scarcer is the ability of economic data. In the low-income countries of the world, one can not be certain of obtaining anything more than basic national accounts, and demographic and external trade data. Nevertheless, in considering the world’s economic environment, the marketer’s problem is not one of an absence of data but rather of an abundance.

6 2. The World Economy Within the past decade, there have been several remarkable changes in the world economy that hold important implications for business. The likelihood of business success is much greater when plans and strategies are based on the new reality of the changed world economy:

7 2. The World Economy 1. Capital movements rather than trade have become the driving force of the world economy. 2. Production has become “uncoupled” from employment. 3. The world economy dominates the scene. The macroeconomics of individual countries no longer control economic outcomes. 4. The growth of commerce via the internet diminishes the importance of national barrier.

8 2. The World Economy The first change is a the increased volume of capital movements. The dollar value of world trade is greater than ever before. Today, it is capital movements and trade that determine currency value. The second change concerns the relationship between productivity and employment. Although employment in manufacturing remains steady or has declined, productivity continuous to grow.

9 2. The World Economy The third major change is the emergence of the world economy as the dominant economic unit. Company executives and national leaders who recognize this have the greatest chance of success. The forth major change is in this new decade, the growth of computer usage and e-commerce is revising the economic landscape.

10 3. Economic Systems There are three types of economic systems: capitalist, socialist, and mixed. This classification is based on the dominant method of resources allocation: market allocation, command or central plan allocation, and mixed allocation, respectively.

11 3. Economic Systems 1. Market Allocation: A market allocation system is one that relies on consumers to allocate resources. Consumers “write” the economic plan by deciding what will be produced by whom. The market system is an economic democracy – citizens have the right to vote with their pocketbooks for the goods of their choice. The role of the state in a market economy is to promote competition and ensure consumers protection.

12 3. Economic Systems 2. Command Allocation: In a command allocation system, the state has broad powers to serve the public interest. These include deciding which product to make and how to make them. Consumers are free to spend their money on what is available, but decisions about what is produced and, therefore, what is available are made by state planners. Because demand exceeds supply, the element of the marketing mix are not used as strategic variables.

13 3. Economic Systems 3. Mixed System: There are, in reality, no pure market or command allocation systems among the world’s economies. All market systems have a command sector, and all command systems have a market sector; in other words, they are “mixed”.

14 4. Stages of Market Development Global country markets are at different stages of development. GNP per capita provides a very useful way of grouping these countries. Using GNP as a base, we have divided global market into four categories. Although the income definition for each of the stages is arbitrary, countries in each of the four categories have similar characteristics. Thus, the stages provide a useful basis for global market segmentation and target marketing.

15 4. Stages of Market Development 1. Low-Income Countries: Low-income countries, also known as pre-industrial countries, are those with incomes of less than US $786 per capita. They constitute 37% of the world population but less than 3% of world GNP. The following characteristics are shared by countries at this income level:

16 4. Stages of Market Development 1. Limited industrialization and a high percentage of the population engaged in agriculture and subsistence farming. 2. High birthrates. 3. Low literacy rates. 4. Heavy reliance on foreign aid. 5. Political instability and unrest. 6. Concentration in Africa, south of the Sahara. In general, these countries represent limited markets for all products and are not significant locations for competitive threats. In general, these countries represent limited markets for all products and are not significant locations for competitive threats.

17 4. Stages of Market Development 2. Lower-Middle-Income Countries: Lower-middle-income countries (also known as less development countries or LDCs) are those with a GNP per capita of more than $786 and less than $3,125. This countries constitute 39% of the world population but only 11% of world GNP. These countries are at the early stages of industrialization. Factories supply a growing domestic market with such items as clothing, batteries, tires, building materials, and packaged foods.

18 4. Stages of Market Development These countries are also locations for the production of standardized or mature products such as clothing for export markets. Consumer market in these countries are expanding. LDCs represent an increasingly competitive threat as they mobilized their relatively cheap – and often highly motivated – labor to serve target markets in the rest of the world. LDCs have a major competitive advantage in mature, standardized, labor-intensive products such as athletic shoes.

19 4. Stages of Market Development 3. Upper-Middle-Income Countries: Upper-middle-income countries, also known as industrializing countries, are those with GNP per capita between $3,126 and $9,655. Those countries account for 7% of world population and almost 7% of world GNP. In these countries, the percentage of population engaged in agriculture drops sharply as people move to the industrial sector and the degree of urbanization increases.

20 4. Stages of Market Development Many of the countries in this stage are rapidly industrializing. They have rising wages, and high rates of literacy and advanced education, but they still have significantly lower wage costs than the advanced countries. Countries in this stage of development frequently become formidable competitors and experience rapid, export-driven economic growth.

21 4. Stages of Market Development 4. High-Income Countries: High-income countries also known as advanced, industrialized, postindustrial, or First World countries, are those with GNP per capita above $9,655. With the exception of a few-oil rich nations, the countries in this category reached their present income level through a process of sustained economic growth. This countries account for only 16% of world population but 82% of world GNP.

22 4. Stages of Market Development Product and market opportunities in a postindustrial society are more heavily dependent on new products and innovation than in industrial societies. Ownership levels for basic products are extremely high in most households. Organizations seeking to grow often face a difficult task it they attempt to expand share of existing markets. Alternatively, they can endeavor to create new markets.

23 4. Stages of Market Development 5. Basket Cases: A basket case is a country with economic, social, and political problems that are so serious they make the country unattractive for investment and operations. Some basket cases are low-income, and no-growth countries, that lurch from one disaster to the next.