Page 85 - DMGT545_INTERNATIONAL_BUSINESS

International Business

notes countries in each of the four categories have similar characteristics. Thus, the stages provide a
useful basis for international market segmentation and target marketing.

5.2.5 location of Population

We have already noted the concentration of 74 per cent of world income in the triad (North
America, the EU, and Japan). In 1997, the 10 most populous countries in the world accounted for
52.5 per cent of world income, and the 5 largest accounted for 48.3 per cent. The concentration
of income in the high income and large-population countries means that a company can be
global — derive a significant proportion of its income from countries at different states of
development — while operating in 10 or fewer countries.
For products whose price is low enough, population is a more important variable than income in
determining market potential. Although population is not as concentrated as income, there is, in
terms of size of nations, a pattern of considerable concentration. The 10 most populous countries
in the world account for roughly 60 per cent of the world’s population today.
The economic role of government can best be defined by a classification of its economic policy
aims. Broadly speaking the political choices made by electorates in Western-type democracies
influence governments perform four functions.
The first is production of services which private firms are either unwilling to produce or for some
reason are not allowed to produce (or at least not exclusively). This public provision may be to
provide immediate benefits (e.g. defence, law and order) or deferred benefits (e.g. investment in
roads).
These ‘production’ activities may be divided into two types:

1. Services which are not sold in the market but are financed out of compulsory levies. It is
considered preferable in economic analysis to treat the government here as a collective
consumer in a position to influence the allocation of resources, rather than as a producer
because the ‘output’ is intangible and is not priced. For our purposes, what is important
is that the government has to purchase in the market the current output of private firms
and the labour services of households in order to fulfil its task. It can, of course, ‘rig’ the
market.

Example: The UK government is not only an important purchaser of vehicles for use in
government departments; it also buys almost exclusively only vehicles produced in the India.

2. Goods produced and sold in the market by public corporations. Many countries have
state-owned fuel and power industries whose operation is very similar to private industry
though the policy instructions laid down by governments for their operation will usually
include objectives other than the making of profits.
The second function is the alteration of the structure of private production in order to conform
to some conception of the allocation of resources which is considered ‘better’ than that resulting
from private market transactions. This aim has already been illustrated in the example given
in. In the national accounts, this aim will be reflected in the choice of taxes levied on goods and
services (e.g. taxes on expenditure), in corporation taxes and in current subsidies.
The third function is to intervene in the distribution of income generated by private market
transactions in order to conform to some acceptable criterion of equity, for example a minimum
income guarantee. This will be reflected in the national accounts principally in the choice of
taxes and in the provision of transfer payments to households against which there is no counter
flow of current services. For example, state pension payments are transfer payments, and though
pensioners do not render current services in order to receive them, they may have contributed to
their finance through compulsory levies on their past incomes. Transfer payments do not form

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