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CHAPTER 4 : The Economic Environment

CHAPTER 4 : The Economic Environment. Learning Objectives :. Understand the most basic variables that international marketers use in screening foreign markets. Stages of economic development and how it impacts international business.

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CHAPTER 4 : The Economic Environment

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  1. CHAPTER 4 : The Economic Environment Learning Objectives: • Understand the most basic variables that international marketers use in screening foreign markets • Stages of economic development and how it impacts international business • Market attractiveness based on : Population, Income, Consumption patterns, Infrastructure, Geography, Foreign Direct Investment in the economy • Market size (potential) and unique characteristics. • Economic environment within nation • Regional economic integration and its impact on economic development

  2. The Global Economy (See Appendix A pp. 130-140) • Industrialized Countries • Less-Developed Countries (LDCs) • Newly Industrialized Countries (NICs) • Major Oil-Exporting Countries • Middle-Income Countries • Newly Emerging Democracies • Some Frequently used Terminologies - Group of five(G5) : USA, Great Britain, France, Germany, Japan - Group of seven(G7) : G5 + Canada and Italy - Group of ten(G10) : G7 + Sweden, Netherlands and Belgium - NICs : Singapore, Taiwan, S.Korea, Hong Kong (4 Tigers of Pacific Rim) - Organization for Economic Cooperation and Development (OECD) : 29 Countries - Organization For Petroleum Exporting Countries (OPEC) • Growing Interdependence of Countries

  3. Walt Rostow’s Stages of Economic Development • Traditional Society : Low literacy, Absence of application of science and technology in major sectors of the economy • Preconditions for Take-off : In the process of transition to take-off stage. Application of science and technology to agriculture, Investment in transportation, Communications, Power, Education, health and other public undertakings . • The take-off : Characterized by high growth in GDP, Modernization and rapid expansion • Drive to Maturity : Sustained Growth in GDP, Significant process in all sectors of the economy including trade. Demonstration of technological and entrepreneurial skills . • Age of high mass consumption : Mass consumption of consumer of durable and non-durable goods and services. High per capita income, significant discretionary income and growth in service sector with (Higher percentage contribution to GDP)

  4. Market Characteristic • Population - Households - Urbanization • Income - Per capita GDP - Per capita Income - Per capita Discretionary Income - Purchasing power parity (PPP) • Consumption Patterns - Per capita expenditures on basic needs, Transportation, Health, Education and leisure - Households owing of appliances, Autos, Computers,TVs - Household debt • Infrastructure - Roadways, Railways, Airways, Water ways - Tele Communications - Internet • Foreign Direct Investment in the economy • Geography

  5. World Population Trends Population in millions

  6. Significant Populations Trends • Developed world population declining • Less developed countries population is increasing • Median age is increasing • Life expectancy is increasing • Two countries with 1 billion or more population : China and India • Population under 15 years : 30% • Population over 65 years : 10% and increasing • Increasing urbanization • Population density : 50 per square mile Note : See http://www.undp.org/popin/for latest analysis review appendix A. (P.130) and understand well the indicators of market size for 115 countries. Also review the global comparison maps .

  7. Economic Environment within a nation Control of Economic activity and ownership of productive resources • Market Economy • Command Economy • Mixed-Economy/Transition Economy • Impact of economic environment on social development. * Physical quality of life index (PQLI) - Life expectancy - Infant mortality - Adult literacy rate • Distribution of wealth/Income in the nation Note : Review the latest world bank publication : World Development Report, and Social Indicators

  8. Regional Economic Integration : Important mode of economic development Level of Economic Integration • Free Trade Area (FTA) : Goods and Services are freely traded among member countries, example : NAFTA, AFTA, APEC • Customs Union (CU) : FTA + Common trade policy with respect to nonmembers • Common Market (CM) : CU + Free flow of factors of production (Labor, Capitol and Technology) between member countries • Economic Union : CM + Integration of economic policies.Harmonize monetary policies, Taxation and Government spending • Political Union : Economic union + Political Unification

  9. Regional Economic Trading Blocs Economic Union Economic Union • Free Trade Area (FTA) • Customs Union (CU) • Common Markets • Economic Union • Political Union Common Market Customs Union Free trade area Free trade among members Common External Trade Policy Factor Mobility Harmonization of Economic Policies

  10. Major Regional Trading Blocs • NAFTA (North American Free Trade Agreement) : Canada, Mexico, US • EU ( European Union) : Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Portugal, Spain, Sweden United Kingdom • EFTA ( European Free Trade) : Iceland, Liechtenstein, Norway, Sweden • LAIA (Latin American Integration Association) : Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, Venezuela • CARICOM (Caribbean Community) : Anguilla, Antigua, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat Jamaica, St. Kitts-Nevis, St. Vincent and the Grenadines, Trinidad • CACM (Central American Common Market) : Costa Rica, El SalvadorGuatemala, Honduras, Nicaragua • MERCOSUR (Southern Common Market) : Argentina, Bolivia, Brazil, Chili, Paraguay, Uruguay

  11. (Continue) • Major Regional Trading Blocs • APEC (Asia Pacific Economic Cooperation) : Austria, Brunei,Canada, Chile, China, Hong Kong, Indonesia, Japan, Malaysia,Mexico, New Zealand, Papua New Guinea, Philippines, Singapore, South Korea, Taiwan, Thailand, United States • SAARC (South Asian Association for Regional Cooperation): Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka • ANCOM (Andean Common Market) : Bolivia, Colombia,Ecuador, Peru, Venezuela • ECOWAS (Economic Community of West African States): Benin, Burkina Faso, Cape Verde, Gambia, Ghana, Guinea, Mali,Guinea-Bissau, Ivory Coast, Liberia, Mauritania, Niger, Nigeria, Togo, Senegal, Sierra Leone • GCC (Gulf Cooperation Council) : Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates

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