1. Honors International Marketing Ms. Osteen
4.02 Economic Environment
Honors International Marketing
Ms. Osteen

2. The Political Economy
Political economy refers to the idea that international business is influenced by the economic and political/legal environments of countries.
International marketers must understand the economic environment and political/legal environment in the countries where they want to sell products.
The political economy will have a direct impact on all of the core standards of marketing.

3. Economic Systems
A country’s economic system governs how it controls the production, distribution, and consumption of goods and services.
Market Economy: The free market determines which products are produced and decides how they are marketed and priced. Private property and entrepreneurship are characteristics. Pure free markets have little government interference.

4. Economic Systems
Mixed Economy: This system combines market economy characteristics with varying levels of government control. Most developed countries have mixed economies. Ex. United States and Japan. In most cases, government control is used to protect consumers and laborers. It also ensures businesses compete fairly. Socialism is a strong form of a mixed economy. Socialism sets strong rules and regulations to control business practices. It aims to protect all citizens.

5. Economic Systems
Planned Economy: The government acts as the central planner in a planned or command economy. This system plans the types of products produced. It also determines where they can be sold and the prices to be charged. The former Soviet planned economies in Central and Eastern Europe collapsed. China has moved some products from a planned economy towards a market-based economy. Large industries such as electrical utilities are still controlled by the state. North Korea and Cuba still operate as planned economies.

6. Economic Systems
Traditional Economy: Customs, religious beliefs, and historical patterns determine how economic questions are answered. Ex. Amish, Aborigines and Amazon Tribes
International marketers will need to develop different sales strategies based on the type of economic system in which they are operating.
Ex. Many companies are cautious about selling in the Chinese market. Weak government control over patents and competitive practices allow Chinese companies to steal product designs and packaging.

7. Economic Integration
Global economic integration refers to the development of trading partnerships through the elimination of restrictions on trade.
Elimination of restrictions increases trade and makes for more efficient use of each country’s resources.
The more integrated countries are, the more likely factors of production will shift between countries, enabling them to produce the highest return.
The goal of economic integration is to improve all countries’ economic welfare.

8. Economic Integration
The least restrictive economic integration is called a free trade area.
In a free trade area, all barriers to free trade are removed.
A customs union is a free trade area with a common trade policy to non-members. Ex. European Union and Turkey.
A common market is a customs union that allows for labor, capital, and technology to move between members. Ex. European Union
Europe’s current economic union coordinates economic policies between member countries.

9. Economic Integration Examples of free trade agreements:
Association of Southeast Asian Nations (ASEAN)
Common Market for East and Southern Africa (COMESA)
Central America Common Market (CACM)
Caribbean Community and Common Market (CARICOM)

10. The Americas
In 1989, the United States signed a free trade agreement with Canada.
In 1992, this agreement was expanded into a set of treaties called the North American Free Trade Agreement (NAFTA).
In 1994, NAFTA created a free trade zone linking Canada, United States and Mexico.
NAFTA eliminated duties on half of all U.S. goods shipped to Mexico.
It also protects patents, copyrights, and trademarks.
It makes it easier to invest among the 3 countries and has rules related to worker and environmental protections.

11. NAFTA
NAFTA’s impact on the reduction in tariffs, the free movement of capital, and more unified laws has helped marketers sell products throughout North America.
There have been numerous debates about whether NAFTA has resulted in job losses in the United States.
NAFTA was a trade agreement between two developed countries and one developing nation.
Some data shows that jobs have moved to Mexico because of its lower labor costs.

12. Central America Free Trade Agreement
A new trade pact called the Central America Free Trade Agreement (CAFTA) was passed in July 2005.
This agreements links the United States with Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic.
It will make 80% of U.S. exports duty-free, with the remaining tariffs phased out in 10 years.
Could increase U.S. exports by $3 billion annually.
Most of these countries are considered to be less-developed, low-wage countries.

13. Free Trade Area of the Americas
An even larger Free Trade Area of the Americas (FTAA) has been proposed.
This agreement would partner all countries in the Americas except Cuba into a free trade zone.