International marketing

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Ch3-economicsv3.pptx

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Chapter 3 Appreciating the dynamics of the international economic and financial environment

Emergence of global markets and global competitors has steadily replaced local competitors

Reduction of tariffs and non-tariff barriers to international marketing

Local firms are subject to greater import competition

Privatisation of government enterprises (e.g. electricity, rail)

Trends in the global economic scene

Fortune’s Top 10 Global Companies 2018
	Company Name	Revenue ($b)
1	Walmart (USA)	500
2	State Grid (China)	349
3	Sinopec Group (China)	327
4	China Natural Petroleum	326
5	Royal Dutch Shell (Netherlands)	312
6	Toyota Motor (Japan)	265
7	Volkswagen (Germany)	260
8	BP (United Kingdom)	245
9	Exxon Mobile (USA)	244
10	Berkshire Hathaway (USA)	242

Source: Fortune Global 500 http://fortune.com/global500/list/

Reasons for increased import competition

Capital movements rather than trade are now the driving force in the world economy

Production is no longer directly linked to employment

World economy impacts more on economic outcomes within a country than the nation state

Contest between capitalism and socialism is over with economies of socialist countries becoming market oriented

Growth of e-commerce diminishes importance of national barriers and creates new business models

Country classification: Systems and stages

Economic systems

Agriculture - crops, fishing, grazing, forestry

Industry - mining, manufacturing, infrastructure

Services – intangibles

Nature of economic stages

Old economies

Focus on product, share of market, production, pyramid management and targeting consumers

New economies

Focus on information, leading function is IT rather than production, success measured by revenue

Transition economies

Based on knowledge, leading function is marketing, success measured in profit rather than market share or revenue

Country classification: Market development stages

High-income countries

‘Post-industrial’ economies (e.g. Switzerland, USA, Sweden)

GNP per capita > $12,276

Upper middle-income countries

‘Industrialising’ countries (e.g. Singapore, Taiwan, Korea)

GNP per capita > $3,975 but < $12,276

Lower middle-income countries

Early stage industrialization (e.g. Vietnam, Philippines)

GNI per capita > $1006 but < $3975

Low-income countries

Agriculture-based economies (e.g. Ethiopia, Sudan, Nicaragua)

GNP per capita < $1005

India’s economy is predicted to be one of the growth engines of the world. View the video and answer the following questions:

https://www.youtube.com/watch?v=CqM43Skhaa4

What factors have propelled India’s economic progression?

The government is accused of manipulating India growth figures. What impact does this have globally?

Think about India’s growth engine

Debate on protectionism

Tariff versus non-tariff barriers

The World Trade Organization (WTO)

Economic integration

Preferential trading arrangements

Reduction in trade constraints between partners but retain barriers for non partners

Free-trade areas

Removal of all restraints to trade between members with no loss of national sovereignty

Customs unions

Removal of barriers to trade between members and development of a common trade policy with non members

International trade

Forms of regional economic integration

Trading environment

Regulated by governments

Government’s desire to control trade flows tends to be motivated by:

Financial issues

Security issues

Safety issues

Health issues

Protectionist issues

Protectionism example

US airlines called for limits on the expansion of Middle Eastern carriers in key American markets, claiming “large government [overseas] subsidies… put the domestic carriers at a disadvantage.”

Source: Transport, 14 February 2015

ASEAN countries have expressed serious concern over the surge in tensions in the disputed South China Sea. View the video and answer the following questions:

https://www.youtube.com/watch?v=8DFdTkcLDCc

Why is ASEAN concerned about the territorial claims that China has made on the South China Sea?

How does ASEAN deal with disagreements between its 10-member nations?

Think about ASEAN and the South China Sea

Engel’s Law - expenditure on ‘other items’

Product saturation

Merchandise trade

Services trade

Consumption patterns

Scenario 1: Annual Income - $50,000

$10 per day on coffee

$50 ($10 x 5 days) per week on coffee

$2,500 ($50 x 50 weeks) per year on coffee

5% ($2,500/$50,000) of income per year on coffee

Scenario 2: Annual Income - $150,000

$10 per day on coffee

$50 ($10 x 5 days) per week on coffee

$2,500 ($50 x 50 weeks) per year on coffee

1.6% ($2,500/$150,000) of income per year on coffee

Engel’s law example

Levels of income

GNP and a country’s ability to fund future development

Purchasing Power Parity (PPP)

Price GDP Capita PPP of GDP Capita

China 475 1,540

Australia 20,400 19,260

Denmark 30,516 20,340

Big Mac Index

Measuring markets: Income and PPP

Significance of population size decreases with the sophistication of the product or service offered

Negative relationship between stage of economic development and population growth rates

Distribution of age and location (rural versus urban)

Measuring markets: Population

Measuring markets: Population density

Rank	Country	Population	Density	Continent
2	Macau	584,420	22,477.69	Asia
3	Singapore	5,618,866	8,226.74	Asia
4	Hong Kong	7,313,557	6,654.74	Asia
28	India	1,282,390,303	390.11	Asia
50	United Kingdom	63,843,856	262.84	Europe
80	China	1,401,586,609	146.05	Asia
85	Thailand	67,400,746	131.36	Asia
112	Malaysia	30,651,176	92.93	Asia
227	Australia	23,923,101	3.09	Oceania

Physical Quality of Life Index measures the level of welfare in a country and takes into account :

Life expectancy

Infant mortality

Adult literacy rate

Measuring markets: Physical quality of life

Facilities and services necessary for the functioning of the economy:

Energy supplies

Transport

Communication

Commercial and financial services

Measuring markets: Infrastructure

Measuring markets: Geography

Natural barriers created by:

Terrain

Climate and extremes of nature

These affect less developed countries to a greater degree

More prosperous nations with greater resources are more able to manage these barriers

Measuring markets: Debt

Level on debt impacts:

Country’s ability to borrow to finance development

Attractiveness as a market

Availability of foreign exchange

Likelihood of payment

Interest on debt consumes a major percentage of export receipts in developing nations

This affects less developed countries to a greater degree

Varies by country, with some countries being almost totally dependent on a single resource (e.g., oil)

Influence source and diversity of export income

Greater diversity provides cushioning effect against economic downturn

Measuring markets: Resources

Top 10 Oil Producers 2017
	Country	Production (million barrels per day)
1	USA	15.65
2	Saudi Arabia	12.09
3	Russia	11.21
4.	Canada	4.96
5	China	4.78
6	Iran	4.70
7	Iraq	4.46
8	UAE	3.72
9	Brazil	3.36
10	Kuwait	2.83

Source: https://investingnews.com/daily/resource-investing/energy-investing/oil-and-gas-investing/top-oil-producing-countries/

Need to monitor the economic environment on both a global and individual country basis

Provides knowledge:

To target specific markets

Nature of customers and demand

Most important segments

Entry strategy

Marketing mix

Market potential

Marketing implications

Think about Volkswagen woes

Volkswagen’s diesel emission scandal rocked the Fortune 500 global company. View the video and answer the following questions:

http://www.smh.com.au/business/world-business/volkswagen-woes-deepen-as-800000-more-cars-affected-20151103-gkq4l7.html

How were irregularities in Volkswagen’s diesel emission discovered?

What were the economic risks for Volkswagen as a result of this problem?

Government intervention

Multiple exchange rates

Types of exposure:

Transaction exposure

Translation exposure

Economic exposure

Managing foreign exchange risk exposure

A$1 = US$1.02 (January 2013)

If sells 100,000 pies @ US$2 (A$2), gross is A$200,000

A$1 = US$0.65 (June 2007)

If sells 100,000 pies @ US$2 (A$3.08), gross is A$308,000

Difference is A$108,000

Foreign exchange risk exposure example

Pull out

Emphasise a product’s value

Change the product mix

Repackage the goods

Maintain stricter inventory

Look outside the region for expansion opportunities

Increase advertising in the region

Increase local procurement

Coping with recession