Econmic Environemnt

The objectives of this chapter are:

Ð'* To describe and demonstrate the importance of the "economic" environment factor in planning and carrying out global marketing

Ð'* To show the importance of the "economic" factor in global marketing

Ð'* To describe and give an understanding of the major world regional economic blocs with particular emphasis on developing countries

Structure Of The Chapter

The chapter starts off with a review of the global economy, the composition of world trade and the World Trade Institutions. Regionalism is a major phenomenon of the late 80s and early 90s and so the chapter describes in detail a number of major regional economic blocs. Very important in any discussion on economic factors is the size of market, and more specifically, the market ability to purchase, which depends on levels of income. The chapter finishes by looking at the nature of economic activity including the stages of market development, urbanisation and infrastructure as important precursors to the degree of economic activity.

Note that a comprehensive case study covering the "environmental" aspects of global marketing occurs at the end of chapter four.

Overview

In the past fifty years the global economy has changed rapidly. Particularly marked has been the development of world economic integration and standardised products. Coca Cola, Nissan and Marlboro cigarettes are examples of products which serve nearly every market. Generally there have been four major changes:

Ð'* capital movements rather than trade have become the driving force of the global economy

Ð'* production has become "uncoupled" from employment

Ð'* primary products have become "uncoupled" from the industrial economy and,

Ð'* the world economy is in control - individual nations are not, despite the large world economic share of the USA and Japan.

Taking each of these changes in turn, world trade is about some US$ 3 trillion, however, capital movements are much higher. The London Eurodollar market is worth about US$ 75 trillion per annum and foreign exchange transactions are US$ 35 trillion per annum.

Another change is the decoupling of employment from production. Employment is in decline whilst manufacturing output is growing or remaining static at 20-25% of GNP. Sectors such as agriculture, are achieving higher productivity through mechanisation but this is at the expense of employment.

Still another change is the decoupling of the primary product market from the industrial economy. Many commodity prices have collapsed, for example tea, yet industrial economies have been relatively affected. Unfortunately the prime producers have been dramatically affected.

Finally, the most significant change is the change of focus from domestic to the world economy as the chief economic unit. This has been grasped by Japan and Germany, but not really by the USA, or Africa. These factors have repercussions on exporting by developing countries. Firstly with developing countries' emphasis on the export of primary products, they are at the mercy of world supply and demand movements, with the resultant fluctuations in prices. Depressed world market prices can have a deleterious effect on developing economies. Secondly the rapid globalisation and focus away from domestic economies has created global competition and in turn, this has pushed up quality. Generally speaking, unless developing countries can break into non-comittally based products they are being further left behind in the global economic stakes. However positively, whilst developed worlds concentrate on industrial and service products it leaves opportunities for developing countries to export more food based products.

The global economy

The development of the global economy can be traced back many hundreds of years when traders from the east and west came together to exchange goods. However, the growth of the modern global economy is marked by a number of features as follows:

The legacy of mercantilism 1500-1750

The prevalent wisdom was one of nationalism, that is, that one nation prospered at the expense of another. Nations like the UK, Netherlands and later France and Germany, with powerful navies which ruled the waves in the West, and the traders of the East, dominated that area. Over time, nationalism gave way to bullionism, where gold and silver, rather than other raw materials, became the basis of wealth. Still later, domination took another form, where countries were believed to be powerful if they had a favourable balance of trade - an excess of exports over imports. Mercantilism died with the development of the United Nations (UN) and the General Agreement on Tariffs and Trade (GATT), along with Adam Smith's tome on the "Wealth of Nations" which advocated market forces as the principal driving force to development and wealth.

World trade

Economic progress is linked to world trade and those who preach trade restrictions are denying this fact. Countries like the old communist bloc (Russia, East Germany, etc.) have not developed as fast as those with more outward orientation. The same can be said of African nations, where the inability to industrialise and export in volume has locked them into, generally, primary product producers. Economic Structural Adjustment Programmes (ESAP) are supposed to remedy this situation by giveng "command economies" a market oriented focus.

Another argument concerns whether marketing has relevance to the process of economic development. Less developed countries (LDCs) have traditionally focused on production and domestic income generation. Also, marketing addresses itself to needs and wants and it could be argued that where LDCs' productive capabilities are far less than unsatisfied needs and wants, then marketing is superfluous. However, adopting "marketing" could lead to the more efficient and effective use of productive and marketing resources and it may be able to focus on current needs and find better solutions. For example, techniques developed in the West for optimising transport resources could well be transferred to effect. Similarly,