Chapter 2 - The Global Marketing Environment
Turn to the Index of Economic Freedom (Table 2-3) and identify where the BRIC nations are ranked. What does the result tell you in terms of the relevance of the index to global marketers?
All four BRIC countries fall within the "Mostly Unfree" category. This indicates that, while the index and what it stands for are certainly important to marketers, they are not willing to forego the business opportunities presented by these countries.
A manufacturer of satellite dishes is assessing the world market potential for his products. He asks you if he should consider developing countries as potential markets. How would you advise him?
Developing markets should prove attractive on the basis of current low product saturation levels. High rates of growth in many developing countries suggest that some segments of the population save enough money to afford expensive electronics equipment such as a satellite dish. A satellite entrepreneur might invite neighbors to his home and charge them for the privilege of watching programming that would not otherwise be available. These neighbors might not be able to afford a satellite and related equipment, but they could afford to watch an occasional movie.
Why are Brazil, Russia, India, and China (BRIC) highlighted in this chapter? Identify the current stage of economic development for each BRIC nation.
Experts predict that the BRIC nations will be key players in global trade even as their track records on human rights, environmental protections and other issues come under closer scrutiny by their trading partners. India is in the Low-Income category. China and Brazil fall within the Lower-Middle-Income category. Russia is the only BRIC nation to be in the Upper-Middle-Income category.
Explain the difference between market capitalism, centrally planned capitalism, centrally planned socialism, and market socialism. Give an example of a country that illustrates each type of system.
Market capitalism is an economic system in which individuals and firms allocate resources and production resources are privately owned. Consumers decide what goods they desire and firms determine what and how much to produce; the role of the state in market capitalism is to promote competition. Market capitalism is found in the United States. Centrally-planned capitalism is an economic system in which command resource allocation is utilized extensively in an environment of private resource ownership can be called. Centrally-planned capitalism is found in Sweden, where two-thirds of all expenditures are controlled by the government. Centrally-planned socialism is an economic system in which the state has broad powers to serve the public interest as it sees fit. State planners make "top-down" decisions about what goods and services are produced and in what quantities; consumers can spend their money on what is available. The government owns industries as well as individual enterprises. Centrally-planned socialism was found in the former Soviet Union. Market socialism is an economic system in which market allocation policies are permitted within an overall environment of state ownership. Market socialism is found in China where farmers can offer part of their production in a free market.
The Heritage Foundation's Index of Economic Freedom is not the only ranking that assesses countries in terms of successful economic policies. For example, the World Economic Forum (WEF; www. weformum.org) publishes an annual Global Competitiveness Report; in the 2006 -2007 report, the United States ranks in sixth place according to the WEF's metrics. By contrast, Sweden is in third place. According to the Index of Economic Freedom' rankings the United States and Sweden are in sixth and twenty-sixth place, respectively. Why are the rankings so different? What criteria does each index consider?
The Heritage foundation measures trade policy, taxation policy, government consumption of economic output, monetary policy, capital flows and foreign investment, banking policy, wage and price controls, property rights, regulations, and the black market. It does take a very conventional and conservative approach to classifying economies. On the other hand, the World Economic Forum, according to their website, states: "The World Economic Forum is an independent, international organization incorporated as a Swiss not-for-profit foundation. We are striving towards a world-class corporate governance system where values are as important a basis as rules. Our motto is 'entrepreneurship in the global public interest'. We believe that economic progress without social development is not sustainable, while social development without economic progress is not feasible. Our vision for the World Economic Forum is threefold. It aims to be: the foremost organization which builds and energizes leading global communities; the creative force shaping global, regional and industry strategies; the catalyst of choice for its communities when undertaking global initiatives to improve the state the world" http://www.weforum.org/en/about/Our%20Organization/index.htm. Clearly, the WEF assigns a great deal of value to measuring the values and social developments, and opportunities of a country. This strong belief system influences the WEF's country ranking - not by what is current possess but what it should be doing.
The seven criteria for describing a nation's economy introduced at the beginning of this chapter can be combined in a number of different ways. Use the seven criteria found on pp. 42-43 to develop a profile of one of the BRIC nations, or any other country that interests you. What implications does this profile have for marketing opportunities in the country?
The United States can be characterized as follows: • Type of economy: Advanced industrial state • Type of government: Democracy with a multi-party system • Trade and capital flows: Incomplete free trade and part of trading bloc • The commanding heights: Mix of state and private ownership • Services provided by the state and funded through taxes: Pensions and education but not health care • Institutions: Transparency, standards, corruption is absent, a free press and strong courts • Markets: Free market system characterized by high risk/high reward entrepreneurial dynamism *Answers will vary depending on the country chosen.
When the first edition of this textbook was published in 1996, the World Bank defined "low-income country" as one with per capita income of less than $501. In 2003, when the third edition of Global Marketing appeared, "low income" was defined as $785 or less in per capita income. As shown in Table 2-4 of this chapter, $935 is the current "low income" threshold. The other stages of development have been revised in a similar manner. How do you explain the upward trend in the definition of income categories during the past 15 years?
The economic systems of countries are constantly developing and changes happen rapidly. The percentage of the world's GNI for low-income countries is now at a record low of 3.23 percent as compared to the lower-middle-income countries, and the upper-middle-income countries. This suggests great gains in income per person and income distribution for those living in the low-income companies. As countries in the low-income begin to tackle their economic, social, and political problems, more opportunities present themselves for the people living in those countries.
A friend is distressed to learn that America's merchandise trade deficit hit a record $780 billion in 2005. You want to cheer your friend up by demonstrating that the trade picture is not as bleak as it sounds. What do you say?
The overall trade balance reflects merchandise as well as services trade as reported in official balance of payments figures. The U.S. typically runs a trade surplus in services, which serves to offset the merchandise trade deficit. The United States is a major service trader. As shown in Figure 2-5, U.S. services exports in 2006 totaled approximately $424 billion. This represented slightly less than one-third of total U.S. exports. The U.S. services surplus stood at $80 billion. This surplus partially offset the U.S. merchandise trade deficit, which reached a record $838 billion in 2006.
India is not included in the Big Mac Index. Can you explain why?
While economists widely cite the Big Mac index as a reasonable real-world measurement of purchasing power parity,[12][13] the burger methodology has some limitations. In many countries, eating at international fast-food chain restaurants such as McDonald's is relatively expensive in comparison to eating at a local restaurant, and the demand for Big Macs is not as large in countries such as India as in the United States.