Chapter 2 The Global Economic Environment

1. Chapter 2The Global EconomicEnvironment

2. Economic Systems • Three types of economic systems • Capitalist • Socialist • Mixed • Classification based on the dominant method of resource allocation Andrew P. Yap - FIU – MAR 4156

3. Economic Systems • Market Allocation • Relies on households and firms to allocate resources • The market system is an economic democracy • Role of state is to promote competition and ensure consumer protection • North America, Western Europe, and Japan Andrew P. Yap - FIU – MAR 4156

4. Economic Systems • Command Allocation • State has broad powers to serve the public interest as it sees fit • Because demand typically exceeds supply, the elements of the marketing mix are not used as strategic variables • China, the former Soviet Union, and India Andrew P. Yap - FIU – MAR 4156

5. Economic Systems • Mixed Allocation • In reality, no “pure” market or command allocation systems exist among world economies • Sweden is more “command” than “market” • United States is more “market” than “command” Andrew P. Yap - FIU – MAR 4156

6. Stages of Market Development • World Bank developed a four-category system of classification based on per capita GNP as a base • Low-Income Countries • Lower-Middle-Income Countries • Upper-Middle-Income Countries • High-Income Countries Andrew P. Yap - FIU – MAR 4156

7. GNP and GDP • What is GNP and GDP? • What is the difference between GNP and GDP? • If a country’s GDP is on the increase, what correlation could be applied in relation to foreign direct investment? Andrew P. Yap - FIU – MAR 4156

8. Big Emerging Markets • Countries experiencing rapid economic growth throughout most of the past decade • Fast growth presents significant marketing opportunities • Countries in Central Europe, Latin America, and Asia Andrew P. Yap - FIU – MAR 4156

9. China India Indonesia South Korea Brazil Mexico Argentina South Africa Poland Turkey Big Emerging Markets (BEMs) Andrew P. Yap - FIU – MAR 4156

10. 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 • What country is an example of a basket case? Andrew P. Yap - FIU – MAR 4156

11. Low-Income Countries • GNP per capita of less than $766 • High percentage of the population engaged in agriculture and subsistence farming • High birth rates • Low literacy rates • Heavy reliance on foreign aid • Political instability and unrest • Concentration in Africa and south of the Sahara Andrew P. Yap - FIU – MAR 4156

12. Lower-Middle-Income Countries • GNP per capita between $766 and $3,035 • Relatively early stages of industrialization • Consumer markets in these countries are expanding • Indonesia and Turkey are BEMs that represent an increasing competitive threat with relatively cheap labor Andrew P. Yap - FIU – MAR 4156

13. Upper-Middle-Income Countries • Also known as industrializing or developing countries • GNP per capita ranging from $3,036 to $9,385 • Rising wages and high rates of literacy, but significantly lower wage costs than the advanced countries • Argentina, Mexico and Brazil are three BEMs in Latin America Andrew P. Yap - FIU – MAR 4156

14. High-Income Countries • Also known as advanced, developed, industrialized, or postindustrial countries • GNP per capita above $9,386 • Product and market opportunities in a postindustrial society are more heavily dependent on new products and innovations than in industrial societies • The most industrialized BEM nation is South Korea • Home to Samsung Electronics, Goldstar, Daewoo and Hyundai Andrew P. Yap - FIU – MAR 4156

15. Group of Seven (G-7) • United States, Japan, Germany, France, Britain, Canada, and Italy • Work together to steer the global economy in the direction of prosperity and to ensure monetary stability • When global crisis looms, G-7 nations gather and try to coordinate policy • Finance ministers, central bankers, and heads of states Andrew P. Yap - FIU – MAR 4156

16. Organization for Economic Cooperation and Development • These 30 nations believe in market-allocation economic systems and pluralistic democracy • Representatives from OECD member nations work together in committees to review economic and social policies that affect world trade • For more information about the OECD visit www.oecd.org Andrew P. Yap - FIU – MAR 4156

17. Balance of Payments • A record of all economic transactions between the residents of a country and the rest of the world • The Balance of Payment is divided into the current and capital accounts Andrew P. Yap - FIU – MAR 4156

18. Balance of Payments • Current account • Record of all recurring trade in merchandise and services, private gifts and public aid transactions between countries • Capital account • Record of all long-term direct investment, portfolio investment, and other short- and long-term capital flows Andrew P. Yap - FIU – MAR 4156

19. Balance of Payment • Trade deficit – imports greater than exports • Trade surplus – greater exports than imports (positive current account balance) Andrew P. Yap - FIU – MAR 4156