Lecture Global marketing management (7th edition): Chapter 2 - Masaaki Kotabe, Kristiaan Helsen

Chapter economic environment, what you should learn from chapter 2: The benefi ts of international markets, the changing face of U.S. business, the scope of the international marketing task, the importance of the self-reference criterion (SRC) in international marketing, the increasing importance of global awareness, the progression of becoming a global marketer.

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MARKETING

MANAGEMENT

Seventh Edition MASAAKI KOTABKE | KRISTIAAN HELSEN

Chapter 2 PowerPoint

Economic Environment

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Chapter Overview

1 Intertwined World Economy

2 Country Competitiveness

3 Emerging Economies

4 Evolution of Cooperative Global Trade Agreements

5 Information Technology and the Changing Nature

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In the same period, total world exports of

merchandise increased by more than 60 percent

The World Bank (at the time of this writing) predicted that the global GDP growth would grow 2.9 percent

in 2016 and strengthen to 3.1 percent in 2017-18

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Exhibit 2-1: Growth in the Volume of World Merchandise Trade and GDP, 2007-2014

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According to the World Trade Organization (WTO), the

top five merchandise exporting countries in 2014

were:

China ($2,343 billion)The United States ($1,610 billion)

Germany ($1,547 billion)Japan ($710 billion)France ($583 billion)

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• Collectively, the top nine export nations accounted for nearly half of world merchandise trade in 2014

• The Triad Regions (North America, Western

Europe, and Japan) of the world collectively

produced nearly 60 percent of world GDP in 2007, down from 78 percent in 2004

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Introduction

• The net result of these factors?

– Increased interdependence of countries/economies – Increased competitiveness

– Need for firms to keep a constant watch on the

international economic environment.

• Consumers and companies in the U.S and Japan are able to find domestic sources for their needs

because of their diversified and extremely large

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1 Intertwined World Economy

• Despite the increasingly intertwined world economy, the United States is still relatively more insulated

from the global economy than other nations In

2014, the U.S economy was about $17.4 trillion and about 13.4 percent of what Americans consumed

was imported in the United States

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Exhibit 2-2: Top 10 Exporters and Importers

in World Merchandise Trade, 2014

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• The larger the country’s domestic economy, the less dependent it tends to be on exports and imports

relative to its GDP

• Intertwining of economies by the process of

specialization due to international trade leads to job creation in both the exporting and importing country

• Foreign direct investment (FDI) involves

investment in manufacturing and service facilities in

a foreign country

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• As firms invest in manufacturing and distribution

facilities outside their home countries to expand into new markets around the world, they have added to the stock of foreign direct investment

• The increase in foreign direct investment has also been promoted by the efforts of many national

governments to woo multinationals

• Portfolio investment or indirect investment refers to investments in foreign countries that are

withdrawable at short notice, such as investments in foreign stocks and bonds

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Exhibit 2-3: Foreign Direct Investment

Inflows, 1995-2014

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• The weekly volume of international trade in

currencies exceeds the annual value of the trade in goods and services

• All nations with even partially convertible currencies are exposed to the fluctuations in the currency

markets

• A rise in the value of the local currencies make

exports more expensive; a rising currency value

also deters foreign investment in a country and may encourage outflow of investment

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• Examples of severe currency fluctuations are the

1995 Mexican meltdown, and the Asian financial

crisis (1997-1999)

• Unfortunately, the influence of these short-term

money flows are nowadays far more powerful

regarding exchange rates than an investment by a Japanese or German automaker

• Recent examples of financial crisis occurred in

Argentina and Brazil (2002)

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2 Country Competitiveness

• Country competitiveness refers to the

productiveness of a country, which is represented by its firms’ domestic and international productive

capacity

• Country competitiveness is not fixed

• The role of human skill resources has become

increasingly important as a primary determinant of industry and country competitiveness

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• Taiwan, another Asian Tiger, dropped from #15 to

#14 between 2014 and 2015

• China and India have been the leading emerging

economic powers in the last decade

• Other OECD countries (especially Japan) have

been increasingly catching up

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Exhibit 2-4: Global Competitiveness

Ranking

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Exhibit 2-5: Leading Emerging Economies

in 2014

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3 Emerging Economies

• Over the next two decades, the big emerging

markets (BEMs) will hold the greatest potential for U.S exports

• Largest BEMs: CEA (China, HK area, Taiwan), India, CIS (Russia, Central Asia, Caucasus states), S

Korea, Mexico, Brazil, Argentina, S Africa, Central Europe region, Turkey, and ASEAN (Brunei,

Cambodia, Indonesia, Laos, Malaysia, Myanmar,

Philippines, Singapore, Thailand, Vietnam)

• BRIC - Brazil, Russia, India, China

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Leading Emerging Economies in 2014

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4 Evolution of Cooperative Global Trade Agreements

• GATT (General Agreements on Tariffs and

Trade):

of Normal Trade Relations (NTR) status.

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international body called the WTO, which took effect

on January 1, 1995.

disputes among nations and has its own secretariat.

a multilateral trading system.

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• WTO’s ninth round -called the “Doha

Development Agenda” (Doha Round) was

launched in Doha, Qatar in November 2001 (see

Exhibit 2-6) Interim deal in December 2005 to end farm export subsidies by 2013 prevented collapse of the latest round of the talks

• The Doha Round of 2001 facilitated the way for

China and Taiwan to get full membership in the

WTO

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Exhibit 2-6: Agenda for the Doha Round

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• Although WTO is a global institutional proponent of free trade, it is not without critics

• The WTO dispute settlement mechanism is faster, more automatic, and less susceptible to blockages than the old GATT system

• The WTO Work Program on Electronic Commerce is

in the process of defining the trade-related aspects

of electronic commerce that would fall under the

parameters of WTO mandates

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5 Information Technology and the Changing Nature of Competition

• Information technology and the changing nature of competition have created many challenges for the firms

• Over the Internet, any piece of electronically

represented intellectual property can be copied

• The Trade Related Aspects of Intellectual

Property Rights (TRIPS) Agreement was

concluded as part of the GATT Uruguay Round

Update to accord ensuring patent protection does not block developing countries’ access to affordable medicines is the top of the agenda

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5 Information Technology and the Changing Nature of Competition

• Proliferation of E-Commerce and Regulations:

Countries’ regulators have not kept pace with the

rapid proliferation of international e-commerce and Internet-related activities

• In many countries, rules and regulations are vague regarding e-commerce transactions

• The United Nations Commission on International

Trade Law (UNCITRAL) has formed a Working

Group on Electronic Commerce to reexamine these treaties

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6 Regional Economic Arrangements

• An evolving trend in international economic activity

is the formation of multinational trading blocs

• There are more than 120 regional free trade areas worldwide

• Market groups take many forms, depending on the degree of cooperation and inter-relationships, which lead to different levels of integration among the

participating countries

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• Types of Regional Economic Arrangements:

more countries to reduce or eliminate customs duties and nontariff barriers Examples: NAFTA, CAFTA-DR, EFTA, MERCOSUR, TPP, and FTAA (proposed and currently stalled)

– Customs Union: Addition of common external tariffs

to the provisions of free trade agreements Example: ASEAN.

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– Common Market: Eliminates all tariffs and other

barriers, adopts a common set of external tariffs on

nonmembers, and remove all restrictions on the flow

of capital and labor among member nations Example: European Union (EU).

– Monetary Union: Represents the fourth level of

integration with a single currency among politically

independent countries Example: EU and the euro.

– Political Union: Highest level of integration resulting

in a political union Sometimes, countries come

together in a loose political union for historical

reasons, as in the case of the British Commonwealth which exists as a forum for discussion and common historical ties.

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7 Multinational Corporations

• The U.S government defines multinational

corporations (MNCs) for statistical purposes as

companies that own or control 10 percent or more of the voting securities, or the equivalent, of at least 1 foreign business enterprise

• The outward FDI stock reached $25.9 trillion in 2014

—a little more than an 11-fold increase since 1990 ($2.3 trillion)

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• In 1970, of the 7,000 multinationals identified by the United Nations, more than half were from two

countries: the United States and Britain

• By 1995, less than half of the 36,000 multinationals identified by the United Nations came from four

countries: the United States, Japan, Germany, and Switzerland

• The nation-state, while considerably weaker than its nineteenth century counterpart, is likely to remain alive and well

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Exhibit 2-7: Selected Indicators of Foreign Direct Investment and International

Production, 1990-2014

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• Currently, factors such as currency movements,

capital surpluses, faster growth rates, and falling

trade and investment barriers have all helped

multinationals from other countries join the

cross-border fray

• It is not unusual for a start-up firm to become global

at its inception Those firms are known as “born

global.”

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