Page 84 - DMGT545_INTERNATIONAL_BUSINESS

Unit 5: Political and Economic Environment

abundance. This unit will identify the most salient characteristics of the economic environment notes
to provide the framework for further consideration of the elements of an international marketing
programme.

5.2.1 the World economy — an overview

The world economy has changed profoundly since World War II. Perhaps the most fundamental
change is the emergence of international markets; responding to new opportunities, international
competitors have steadily displaced local ones. Concurrently, the integration of the world
economy has increased significantly. Economic integration stood at 10 per cent at the beginning
of the 20th century, today it is approximately 50 per cent. Integration is particularly striking in
two regions, the European Union (formerly the European community) and the North American
Free Trade Area.

5.2.2 marketing and economic Development

An important concern in marketing is whether it has any relevance to the proof of economic
development. Some people believe the field of marketing is relevant only to the conditions that
apply in affluent, industrialized countries where the major problem is one of directing society’s
resources into ever-changing output or production to satisfy a dynamic market-place. In the less
developed countries, the argument goes; the major problem is the allocation of scarce resources
toward obvious production needs. Efforts should focus on production and how to increase
output, not on customer needs and wants.
Conversely, it can be argued that the marketing process of focusing an organization’s resources
on environmental opportunities is a process of universal relevance. The role of marketing – to
identify people’s needs and wants and to focus individual and organizational efforts to respond
to these needs and wants – is the same in both low and high income countries. For example,
pursuing alternative sources of energy such as wind and solar power is important for two
reasons: the lack of coal reserves in many countries, and concerns that over reliance on fossil fuels
will contribute to global warming. These concerns have led to the development of solar-powered
lanterns that are used in villages in India. Similarly, solar water heaters have been installed in
Gaborone, the capital of Botswana, eliminating as much as 40 per cent of the energy requirements
for thousands of families.

5.2.3 economic system

There are three types of economic systems: capitalist, socialist and mixed. This classification is
based on the dominant method of resource allocation: market allocation, command or central
plan allocation, and mixed allocation, respectively.
A recent report by Washington DC – based on Heritage Foundation — ranked more than
100 countries by degree of economic freedom. Ten key economic variables were considered:
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. The rankings form a continuum form “free” to “repress”
with “mostly free” and “mostly unfree” in between. Hong Kong is ranked number 1 in terms of
economic freedom; Cuba and North Korea are ranked lowest.

5.2.4 stages of market Development

International country markets are at different stages of development. GNP per capita provides a
very useful way of grouping these countries. Using GNP as a base, we have divided international
markets into four categories. Although the income definition for each of the stages is arbitrary,

lovely Professional university 79