1. Copyright © 2001 by Harcourt, Inc.. All rights reserved. Requests for permissions to make copies of any part of the work should be mailed to the following address: Permissions Department, Harcourt, Inc., 6277 Sea Harbor Drive, Orlando, Florida 32887-6777. INTERNATIONAL MARKETING The Economic Environment Chapter 4

2. Copyright © 2001 by Harcourt, Inc. All rights reserved. 4-2 The Foreign Market Environment u Group of Five United StatesUnited States BritainBritain FranceFrance GermanyGermany JapanJapan u Group of Seven The Group of Five, plusThe Group of Five, plus –Italy –Canada u Group of Ten The Group of Seven, plusThe Group of Seven, plus –Sweden –the Netherlands –Belgium

3. Copyright © 2001 by Harcourt, Inc. All rights reserved. 4-3 Market Characteristics u Population demographics Age distribution, life expectancies, household size, urbanizationAge distribution, life expectancies, household size, urbanization u Income Distribution of low, medium, and high incomesDistribution of low, medium, and high incomes Gross domestic product per capitaGross domestic product per capita Purchasing power parityPurchasing power parity u Consumption patterns Income spent on necessities and luxuriesIncome spent on necessities and luxuries Product saturation or diffusionProduct saturation or diffusion Product form differencesProduct form differences

4. Copyright © 2001 by Harcourt, Inc. All rights reserved. 4-4 Market Characteristics… continued u Availability and quality of infrastructure Rail traffic networks for distribution capabilitiesRail traffic networks for distribution capabilities Communication systems for marketingCommunication systems for marketing Energy (electrical and fuel) consumptionEnergy (electrical and fuel) consumption u Foreign involvement in the economy Degree of foreign direct investment in country or in a specific industryDegree of foreign direct investment in country or in a specific industry Rules governing foreign investmentRules governing foreign investment u Impact of the economic environment on social development Urbanization, life expectancy, literacy rates, etc.Urbanization, life expectancy, literacy rates, etc. Physical Quality of Life Index (PQLI)Physical Quality of Life Index (PQLI)

5. Copyright © 2001 by Harcourt, Inc. All rights reserved. 4-5 Regional Economic Integration u Levels of economic integration Free Trade AreaFree Trade Area –Goods and services are freely trades among all members. Each country maintains its own trade barriers vis-à-vis nonmembers. Customs UnionCustoms Union –Members establish a common trade policy with respect to nonmembers. Common MarketCommon Market –Factors of production mobility is emphasized. A common external tariff is adopted Economic UnionEconomic Union –Integration and harmonization of economic and monetary policies is achieved leading to political union.

6. Copyright © 2001 by Harcourt, Inc. All rights reserved. 4-6 The Free Trade Area u Eliminates tariff and quota barriers among member countries u Each country is free to set its own tariff and quota barriers against nonmember countries u Can be formed for certain classes of goods or services only

7. Copyright © 2001 by Harcourt, Inc. All rights reserved. 4-7 The Customs Union u Tariff and quota barriers among member countries are eliminated u Member countries establish common tariff and trade barriers against nonmember countries u Tariff revenues are shared among members according to a prescribed formula

8. Copyright © 2001 by Harcourt, Inc. All rights reserved. 4-8 The Common Market u No trade barriers among member nations u No restriction on the movement of labor, capital, or technology across borders u Member countries establish common tariff and trade barriers against nonmember countries

9. Copyright © 2001 by Harcourt, Inc. All rights reserved. 4-9 The Economic Union u has all the characteristics of a common market, u harmonizes taxation, u harmonizes government spending, and u harmonizes monetary policies, u establishes a common currency

10. Copyright © 2001 by Harcourt, Inc. All rights reserved. 4-10 Economic Integration in Regional Markets Free Trade Area Economic Union Customs Union Common Market Harmonization of Economic Policies Factor Mobility Common External Trade Policy

11. Copyright © 2001 by Harcourt, Inc. All rights reserved. 4-11 The Maastricht Agreement u Created the European Union starting in January, 1994. u Established European Community citizenship. u Established a Central Bank and a system to manage monetary policy. u Established price stability. u Established a commitment by member countries to reduce governmental deficits u Recommended a single currency, the Euro, become the common currency in 1999.

12. Copyright © 2001 by Harcourt, Inc. All rights reserved. 4-12 European Integration u Expected economic growth from: Eliminating transaction costsEliminating transaction costs Economies of scale will be attained as production becomes concentratedEconomies of scale will be attained as production becomes concentrated More intense competition from EU companiesMore intense competition from EU companies u Operations from one country can be freely expanded to other countries. u Products can be freely sold across borders to millions of new consumers.

13. Copyright © 2001 by Harcourt, Inc. All rights reserved. 4-13 Fortress Europe May Develop u EU integration may result in increased restrictions on trade and investment by outsiders.

14. Copyright © 2001 by Harcourt, Inc. All rights reserved. 4-14 Economic Integration in the Americas u The North American Free Trade Agreement (NAFTA) created the world’s largest free market. 390 million U.S., Canadian, and Mexican consumers390 million U.S., Canadian, and Mexican consumers

15. Copyright © 2001 by Harcourt, Inc. All rights reserved. 4-15 The Maquiladoras u Plants in Mexico that make goods and parts or process food for export back to the U.S.

16. Copyright © 2001 by Harcourt, Inc. All rights reserved. 4-16 Other Economic Alliances u Import Substitution As a step to develop economic growth in small developing countries, new domestic industries are encouraged to produce goods that were formerly imported.As a step to develop economic growth in small developing countries, new domestic industries are encouraged to produce goods that were formerly imported.

17. Copyright © 2001 by Harcourt, Inc. All rights reserved. 4-17 Other Economic Alliances in the Americas u Southern Cone Common Market (Mercosur) u Andean Common Market (ANCom) u Central American Common Market (CACM) u Caribbean Common Market (CARICOM) u Caribbean Basin Initiative

18. Copyright © 2001 by Harcourt, Inc. All rights reserved. 4-18 Free Trade Area of the Americas (FFTA) u An agreement to form a regional trading zone stretching from Point Barrow, Alaska to Patagonia, Argentina.  

19. Copyright © 2001 by Harcourt, Inc. All rights reserved. 4-19 Integration in Asia u Asia-Pacific Economic Cooperation (APEC) u Association of Southeast Asian Nations (ASEAN) u East Asia Economic Group u South Asian Association for Regional Cooperation (SAARC)

20. Copyright © 2001 by Harcourt, Inc. All rights reserved. 4-20 Integration in Africa and the Middle East u Economic Community of West African States (ECOWAS) u Afro-Malagasy Economic Union u East Africa Customs Union u West African Economic Community u Maghreb Economic Community u Gulf Cooperation Council (GCC)

21. Copyright © 2001 by Harcourt, Inc. All rights reserved. 4-21 Economic Integration and the International Marketer u Assessing opportunities and problems Marketers must envision the impact of integration on the firm’sMarketers must envision the impact of integration on the firm’s –mode of market entry (local production) –increased scale of entry (interregional trade) –the targeted markets’ readiness for change and develop a strategic response to build long-term sustainable competitive advantage through expansion, acquisitions and alliances.and develop a strategic response to build long-term sustainable competitive advantage through expansion, acquisitions and alliances.