Chapter 4

The
Economic
Environme
nt

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 Exhibit 4.1 - The Global Economy
2

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 Market Characteristics
3

Population
Population figures can be classified to show specific
characteristics of their respective markets.
Age distribution and life expectancy correlate
heavily with the level of development of the
market.
A household describes all the persons, both
related and unrelated, who occupy a housing unit.
The degree of urbanization dictates the nature of
the marketing task the company faces, in terms of
distribution, market potential, and buying habits.

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 Exhibit 4.3 - World Economic
Pyramid
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 Market Characteristics
5

Income

Income-Distribution can be classified as very low

family incomes, very low, very high family incomes,
low, medium, high family income, and mostly
medium family incomes.
Per Capita GDP is often used as a primary indicator
for evaluating purchasing power.
Purchasing Power Parities (PPP) show how
many units of currency are needed in one
country to buy the amount of goods and
services that one unit of currency will buy in
another country.
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 Market Characteristics
6

Income figures are useful in the initial

screening of markets; however, in
product-specific cases, income may
not play a major role.

The lack of income in a market may

preclude the marketing of a standardized
product but, at the same time, provide an
opportunity for an adjusted product.
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 Market characteristics
7

The international marketer can use the following

classification as a planning guide:

a)Very Low Family Incomes: subsistence economies tend to

be characterized by rural populations in which
consumptions relies on personal output or barter.
( Cameroon )
B)Very Low , Very High Family Incomes: some countries
exhibit strongly bi-modal income distributions. The majority of
the population may live barely above subsistence level , but
there is a strong market in urban centers and a growing middle
class.(India , Mexico)

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 Market characteristics
8

c) Low,Medium,High Family Incomes: industrialization produces

an emerging middle class with increasing disposable
income. The very low and very high income classes tend to
remain for traditional reasons of social class barriers.
(Portugal)
d) Mostly Medium Family Incomes: the advanced industrial
nations tend to develop institutions and policies that reduce
extremes in income distribution, resulting in a large and
comfortable middle class able to purchase a wide array of
both domestic and imported products and services.
(Denmark)

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 Market Characteristics
9

Consumption Patterns
Engel’s Laws - As a family’s income increases,
the percentage spent on food will decrease,
the percentage spent on housing and
household operations will be roughly constant,
and
the amount saved or spent on other purchases
will increase.
Product Saturation Or Diffusion provides
information on the percentage of households in
a market that own a particular product.

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 Market Characteristics
10

General consumption figures must be

viewed with caution as they may conceal
critical product-form differences.

Inflation affects the buying ability of both

industrial customers and consumers, and also
introduces uncertainty into both the
marketer’s planning process and consumers’
buying habits.

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 Market Characteristics
11

Infrastructure
Transportation networks by land, rail,
waterway, or air are essential for distribution.
Communication systems for marketing include
telephones, computers, broadcast media, print
media, internet, and wireless technology.
The more extensive the firm’s international
involvement, the more it can rely on its
Already existing support network of banks,
Advertising agencies, and
Distributors to assess new markets.

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 Impact of the Economic Environment on
Social Development
12

Factors Impeding Economic Growth:

Infrastructure limits
Labor shortages
Demand for greater political freedom
Environmental destruction
Urban congestion
Spread of drug addiction
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 Impact of the Economic Environment on
Social Development
13

Physical Quality of Life Index (PQLI)

Is a composite measure of
the level of welfare in a
country.
Is composed of life
expectancy, infant mortality,
and adult literacy rates.

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 Impact of the Economic Environment on
Social Development
14

Emotional well-being may be determined by:

Quality of social
relationships
Enjoyment at work
Job stability
Overall conditions of the
country
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 Exhibit 4.9 - Forms of Economic Integration in Regional
Markets
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 Levels of Economic Integration
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Free trade area

Customs union
Common market
Economic union
European integration
North American
integration
Other economic alliances
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 Levels of Economic Integration
17

Free Trade Area

Eliminates tariff and quota barriers
among member countries.
Each country is free to set its own
tariff and quota barriers against
nonmember countries.
Is sometimes formed only for
certain classes of goods or
services.

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 Levels of Economic Integration
18

Customs Union
Tariff and quota barriers among
member countries are eliminated.
Establishes a common trade policy
with respect to nonmembers, which
takes the form of a common external
tariff, whereby imports from
nonmembers are subject to the
same tariff when sold to any
member country.

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 Levels of Economic Integration
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Common Market Area

Covers the exchange of goods and services,
prohibits duties in exports and imports
between members, and adopts a common
external tariff with respect to nonmembers.
Factors of production are mobile among members.
Abolishes restrictions on immigration and
cross-border investment.
Members must cooperate closely in monetary,
fiscal, and employment policies.

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 Levels of Economic Integration
20

Economic Union
Requires integration of economic
policies in addition to the free
movement of goods, services, and
factors of production across
borders.
Harmonizes taxation, government
spending, and monetary policies.
Establishes a common currency
for members.

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 Levels of Economic Integration
21

European Integration
Results in economic growth; sources of growth
being:
Elimination of transaction costs.
Economies of scale attained as production becomes
concentrated.
More intense competition from European companies.
Operations from one country can be freely
expanded to other countries.
There is a “Fortress Europe” fear.

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 Exhibit 4.10 - Proposed Company
Responses to European Integration
22

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 Levels of Economic Integration
23

North American Integration

Is for purely economic reasons.
There are no constituencies for
political integration.
The ratification of the North
American Free Trade Agreement
(NAFTA) created the world’s largest
free market, with 450 million
consumers and a total output of
$15.7 trillion.
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 Levels of Economic Integration
24

North American integration

Distinctive features of NAFTA

are the two-side agreements
to correct perceived abuses
in labor and the
environment in Mexico.
Introduction of Maquiladoras.
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 Meaning of Maquiladoras.
25

 A maquiladora (Spanish pronunciation: [

makilaˈðoɾa]) or maquila (IPA: [maˈkila])[1] is the
Mexican name for manufacturing operations in a
free trade zone (FTZ), where factories import
material and equipment on a duty-free and
tariff-free basis for assembly, processing, or
manufacturing and then export the assembled,
processed and/or manufactured products,
sometimes back to the raw materials' country of
origin.
 Currently about 1.3 million Mexicans are
employed in one or more of approximately 3,000
maquiladoras.[2]
 The term maquiladora, in the Spanish language,
refers to the practice of millers charging a
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maquila, or "miller's portion" for 02/20/2025
processing other
[3]
 Regional Economic Integration
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Other Economic Alliances

Integration in Latin
America
Integration in Asia
Integration in Africa
and the Middle East
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 Exhibit 4.11 - Major Regional Trade
Agreements
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 Exhibit 4.11 - Major Regional Trade
Agreements
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 Regional Economic Integration
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Economic Integration and The International Marketer

Regional economic integration creates
opportunities and potential problems
for the international marketer.
Decisions regarding integrating
markets must be assessed from four
different perspectives:
Effects of change
Strategic planning
Reorganization
Lobbying
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 Emerging Markets
30

Emerging Markets - A country making an

effort to change and improve its
economy with the goal of raising its
performance to that of the world’s most
advanced nations.
Strategies adopted by marketers to thrive in
emerging markets:
Adjust entry strategy
Manage affordability
Invest in distribution
Build strong brands
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 Developing Markets
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Five elements of success required for an

international marketer to take
advantage of and thrive in
developing markets.
Research
Creating buying power
Tailoring local solutions
Improving access
Shaping aspirations
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 Chapter –End Questions for Discussion

32

1. Place the markets in the framework that follows:

Income level: Low, Middle, High
Trade structure: Industrial, Developing (semi-
industrial, oil-exporting, primary producing,
populous S. Asia, least developed)
2. Using available data, assess the market
potential for a) power generators and b)
consumer appliances in (1) the Philippines, (2)
Jordan, (3) Portugal.
3. From the international marketer's point of view,
what are the opportunities and problems caused
by increased urbanization in developing
countries?

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 Chapter –End Questions for Discussion

33

4. Comment on this statement: "A low per-

capita income will render the market
useless."
What can a marketer do to advance
regional economic integration?
Explain the difference between a free
trade area and a common market.
Speculate why negotiations were held
for a North American Free Trade
Agreement rather than for a North
American Common Market.

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 Internet Exercises

34

1. Compare and contrast two different points

of view on expanding trade by accessing
the Web site of The Business Roundtable—
an industry coalition promoting increased
to and from world markets (
http://www.businessroundtable.org), and
the AFL-CIO, American Federation of Labor
—Congress of Industrial Organizations (
http://www.aflcio.org).
2. Why do marketers engage in major
projects in developing countries, such as
Hewlett-Packard’s e-inclusion project (
http://www.hp.com/e-inclusion/en/project/
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35

Thank You !!!

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