1. Global Marketing Management A European Perspective
Economic Environment
Warren J. Keegan
Bodo B. Schlegelmilch

2. Overview The World Economy – An Overview Economic Systems
Stages of Market Development
Income and Purchasing Power Parity
Regionalisation of Markets
Summary

3. Learning Objectives
Understanding the main differences between economic systems found around the world
Learning ways of classifying countries by their market development
Understanding consumption patterns in different countries
Knowing the main regional economic co-operation agreements

4. The World Economy - Overview
World Economy has changed profoundly during the last 50 years
Emergence of global markets
Integration of world economy
Capital movements are driving force of world economy
Production is “uncoupled” from employment
Macroeconomics of individual countries no longer control economic outcomes

5. Economic Systems Three types of economic systems
Capitalist
Socialist
Mixed
Classification based on dominant method of resource allocation
Market allocation
Command or central plan allocation
Mixed allocation

6. Economic Systems – Market Allocation
Relies upon consumers to allocate resources: “Economic Democracy”
Role of state
Promote competition
Ensure customer protection
Examples of predominately market economies
Western European Countries, United States, Japan

7. Economic Systems – Command Allocation
State has broad powers to serve public interest
Decides which products to make
Decides how to make them
Elements of marketing mix are not used as strategic variables
Examples of countries that relied upon command allocation systems for decades
China, former USSR, India

8. Economic Systems – Mixed Systems
There are in reality no pure market or command allocation systems among the world’s economies
Variables to determine degree of economic freedom
Trade policy
Taxation policy
Government consumption of economic output
Monetary policy
Capital flows
Foreign investment
Banking policy
Wage and price controls
Property rights
Etc.

9. Economic Systems
Index of Economic Freedom (Source: Heritage Foundation)
Free:
E.g., Hong Kong, Singapore, US, Japan, UK, Taiwan, Bahrain
Mostly Free
E.g., Canada, Germany, Austria, Estonia, France, Sweden, Hungary
Mostly Unfree
E.g., Turkey, Mexico, Israel, Malta, Russia, Bulgaria, Philippines
Repressed
E.g., North Korea, Haiti, Moldova, Angola, Cuba

10. Stages of Market Development
Global country markets are at different stages of development
GNP per capita provides a useful way of grouping countries into 5 categories
Categories are a useful basis for
Global segmentation
Target marketing

11. Stages of Market Development – High Income Countries
GNP per capita above € 7,960 (E.g., Japan, Sweden)
“Post-Industrial Countries”
Ascendancy
Of knowledge over capital as key strategic resource
Of intellectual technology over machine technology
Of scientists and professionals over engineers and semiskilled workers
Orientation toward the future
Importance of interpersonal relationships

12. Stages of Market Development – Upper Middle Income Countries
GNP per capita between € 2,575 and € 7,960 (E.g., Malaysia)
Characteristics
Rising wages
High rates of literacy
Advanced education
Upper middle income countries
Experience rapidly, export-driven economic growth
Become formidable competitors

13. Stages of Market Development – Lower Middle Income Countries
GNP per capita between € 650 and € 2,575 (E.g., Indonesia)
Characteristics
Early stages of industrialization
Expanding consumer markets
Major competitive advantage in the production of mature, standardized, labour-intensive products

14. Stages of Market Development – Low Income Countries
GNP per capita less than € (E.g., Bangladesh)
Characteristics
Limited industrialization
High birth rates
Low literacy rates
Heavy reliance on foreign aid
Political instability

15. Income and Purchasing Power (1)
Single most important indicator of market potential
Purchasing Power Parities
Comparison of goods and services that can be bought with local currency in different countries
Gross National Product (GNP)
Sum of the money values of all final goods and services produced during a year

16. Income and Purchasing Power (2)
Top 10 Nations ranked by GNP/Capita (1997)
Luxembourg
Switzerland
Japan
Norway
Denmark
Singapore
Germany
Austria
United States
Belgium

17. Income and Purchasing Power (3)
Top 10 Nations ranked by GNP/Capita adjusted for Purchasing Power (PPP)
Luxembourg
United States
Switzerland
Kuwait
Hong Kong
Singapore
Japan
Norway
Belgium
Canada

18. The Location of Population
About 74% of world income is concentrated in the Triad (North America, Japan, Western Europe)
Country Population GNP/Capita % World (thousands) (thousands) GNP
China 1,231,
India ,
United States , ,
Indonesia ,
Brazil , ,

19. Marketing And Economic Development
Does marketing play an important role in the economic development of a country?
Is marketing only relevant to conditions that apply in affluent, industrialized countries?
The marketing process of focusing an organization’s resources on environmental opportunities is a process of universal relevance

20. Balance of Payments
A record of all economic transactions between residents of a country and the rest of the world
Capital Account records
Long-term direct investment, Portfolio investment, Other short- and long-term capital flows
Current Account records
Trade in merchandise and service, Private gifts, Public aid transactions between countries

21. Regionalisation of Markets (1)
Many different forms of economic co-operation between countries
Free trade areas
Customs unions
World Trade Organisation (WTO)
Acts as mediator in global trade disputes
Ensures that trade flows are as smooth, predictable and as free as possible
Common markets
Economic unions

22. Regionalisation of Markets (2)
European Union (EU)
15 European member countries
Market of 379 million people
North American Free Trade Agreement (NAFTA)
United States, Canada, Mexico
Market of 381 million people
Association of Southeast Asian Countries (ASEAN)
10 member countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam)

23. Summary
Economic environment is major determinant of global market potential and opportunity
World economies can be categorized into market allocation systems, command allocation systems, and mixed systems
For many products, most important indicator of market potential is income
There is a strong interest among nations in forming economic co-operations