The Dynamic Environment of International Marketing

2. The Dynamic Environment ofInternational Marketing 2 CHAPTER Presentations prepared by Ralph Rossman, Seneca College

3. What you should learn from Chapter 2 • The situation in the world today and future trends • The importance of, and key trends in, international trade and investment • The relevance of the GATT/WTO, IMF, World Bank, and the UN to international marketing • The reestablishment of world trade and investment following World War II • Major global and local population trends

4. What you should learn from Chapter 2 continued… How environmental dynamics have their roots in a country’s geography, its population, and historical evolution The effects of history and geography on a country’s culture The effects of geographic diversity on the economic profiles of countries The economic effects of population dynamics, such as population aging.

5. The 20th to the 21st Century • The first half of the twentieth century was marred by a major worldwide economic depression that occurred between two world wars and all but destroyed most of the industrialized world. • The last half of the century was marred by the Cold War between capitalist & socialist Marxist countries. • As a result of this ideological split, traditional trade patterns were disrupted. • The major powers engaged in real but “proxy” wars through their smaller allies (Vietnam, Angola etc.)

6. Post WW2 Recovery • The Marshall Plan, sponsored by the United States, was launched to assist in rebuilding Europe and Japan. • Through the Agency for International Development, monies were invested in underdeveloped countries to foster economic growth and help create a stronger world economy. • The dissolution of colonial powers created scores of new countries mainly in Asia and Africa wishing to gain economic independence. • The financial assistance offered by multinational financial institutions, allowed most of the non-communist world’s economies to grow.

7. It’s Not Altruism... • For every dollar invested in the economic development and rebuilding of other countries after World War II, hundreds of dollars more returned to capital-supplying nations in the form of purchases of agricultural products, manufactured goods, and services. • This overseas demand was important to North American economies since the vast manufacturing base built in Canada and the United States to supply the Allies in World War II, and the swelling labour supply of returning military personnel, created a production capacity well beyond domestic needs.

8. It’s Not Altruism • The resulting major economic boom and increased standard of living in North America after World War II were fuelled by fulfilling pent-up demand worldwide.

9. Which Lead To... • General Agreement on Tariffs and Trade (GATT), the predecessor of... • The World Trade Organization (WTO).

10. The 1st Decade of the 21st Century & Beyond • The Organization for Economic Cooperation and Development (OECD) - economies of member countries will expand an average of 3% annually for the next 25 years. • Developing world economies will grow from an annual rate of 4% in the past quarter century to a rate of 6% for the next 25 years.

11. The 1st Decade of the 21st Century & Beyond • Developed world: ~ 3% increase in trade annually • Developing world: ~ 6% increase in trade annually • Brazil, China, India, Indonesia & Russia • now 1/3rd of EU trade • will be 50% more than EU in 2020

12. What does This Mean? • If a company is to be a major player in the future, now is the time to begin laying the groundwork for expansion into the developing world

13. An Overview of International Trade and Investment • 2005 world exports amounted to over US$ 10 trillion, compared to US$7.3 trillion just two years earlier and to less than US$4 trillion in 1993. • U.S. exports only about 15% of its Gross Domestic Product (GDP) • Canada exports more than 40% & Belgium about 60%. • The low proportion of U.S. exports compared to GDP reflects the huge size of that country’s domestic economy

14. Balance of Trade (Exhibit 2.2)

15. Does Trade Bring Peace? • 1993-2003: World trade went from $3.7 trillion to 7.4 trillion • 1989-1999: Global military expenditures declined from US$1.05 trillion to just below US$700 billion • ~1990-2001: all acts of political violence except terrorism had declined by 40 percent • ~1950-2001: The average number of people killed every month due to armed conflict around the world dropped from 38,000 to 600

16. General Agreement on Tariffs & Trade • Trade shall be conducted on a non-discriminatory basis • Protection shall be afforded domestic industries through customs tariffs, not through such commercial measures as import quotas • Consultation shall be the primary method used to solve global trade problems.

17. World Trade Organization (WTO) • The WTO is an institution, not an agreement as is the GATT • It sets many rules governing trade between its members • Provides a panel of experts to hear and rule on trade disputes between members • Unlike GATT, decisions are binding • It requires the full participation of all members in all aspects of the current GATT • Provides a permanent, comprehensive forum to address the trade issues of the twenty-first-century global market.

18. World Trade Organization (WTO) • All member countries have equal representation in the WTO’s ministerial conference which meets at least every two years to vote for a director general who appoints other officials. • Trade disputes, such as the one about genetically modified foods, are heard by a panel of experts selected by the WTO from a list of trade experts provided by member countries. • The panel hears both sides and issues a decision; the winning side will be authorized to retaliate with trade sanctions if the losing country does not change its practices.

19. World Trade Organization (WTO) • Although the WTO has no actual means of enforcement, international pressure to comply with WTO decisions from other member countries is expected to force compliance. • The WTO ensures that member countries agree to the obligations of all the agreements, not just those they like. • For the first time, member countries, including developing countries (the fastest-growing markets of the world), are undertaking obligations to open their markets and be bound by the rules of the multilateral trading system.

20. The International Monetary Fund &the World Bank • 181 member countries. • Created to assist nations in becoming and remaining economically viable. • Each plays an important role in international trade by: • Helping to maintain stability in financial markets • by assisting countries that are seeking economic development and restructuring. • Stabilizes foreign exchange rates and the establishes freely convertible currencies to facilitate the expansion and balanced growth of international trade

21. IMF & Special Drawing Rights • Most monetary statistics relate to SDRs rather than dollars. • The SDR is in effect “paper gold”; and represents an average base of value derived from the value of a group of major currencies. • Rather than being denominated in the currency of any given country, trade contracts are frequently written in SDRs because they are much less susceptible to exchange rate fluctuations.

22. The World Bank • Its goal: The reduction of poverty and the improvement of living standards by promoting sustainable growth and investment in people. • The World Bank provides loans, technical assistance, and policy guidance to developing-country members to achieve its objectives

23. The World Bank • Lends money to the governments of developing countries to finance development projects in education, health, and infrastructure • Provides assistance to governments for developmental projects to the poorest developing countries • Lends directly to the private sector to help strengthen the private sector in developing countries with long-term loans, equity investments, and other financial assistance • Provides investors with investment guarantees against non-commercial risk such as expropriation and war, to create an environment in developing countries that will attract foreign investment • Promotes increased flows of international investment by providing facilities for the conciliation and arbitration of disputes between governments and foreign investors.

24. History Can Answer Many Marketing Questions – For Example... • Why do the Japanese have such strong loyalty toward their companies? • Why is the loyalty found among participants in the Japanese distribution systems so difficult for an outsider to develop? • Why are Japan’s relations with China tense, giving an edge to competitors from other countries in the Chinese market? • Why do the Japanese make decisions by consensus? • Why do Japanese consumers care more about who the manufacturer of a brand is and which country it comes from more than virtually any other consumers in the world?

25. Exhibit 2.5

26. Dynamics of Global Population Trends • World population: 6 billion + • Population is expected to grow to 9.4 billion by 2050. • 98% of the projected growth to 2050 will occur in less developed regions • 83% of the population will be concentrated in less-developed regions by 2025; 88% by 2050 • International Labour Organization estimates that 1.2 billion jobs must be created worldwide by 2025 to accommodate these new entrants.

28. Rural/Urban Migration • Early 1800s: <3.5% of the world’s people were living in cities of 20,000 or more • <2% percent in cities of 100,000 or more • Today, more than 40% of the world’s people are urbanites, and the trend is accelerating. • The family income of a manual worker in urban Brazil, for example, is almost five times that of a farm labourer in a rural area. • By 2025, it is estimated that more than 60 percent of the world’s population will live in urban areas