Page 58 - DMGT547_INTERNATIONAL_MARKETING

Unit 3: Political Environment of International Marketing

South Korea’s economy is booming. South Korea’s GDP of $289 billion dwarfs North Korea’s Notes
GDP of $20 billion. North Korea’s export of $935 million is no match for South Korea’s exports
of $81 billion. It should be noted that North Korea is much better endowed with than its southern
counterpart in terms of natural resources.
Despite communist countries’ preoccupation with control of industries, all the communist
governments are not alike. Although the former Soviet Union and China adhere to the same
basic ideology, there was marked difference between these two largest communist giants. China
has been experimenting with a new type of communism by allowing its citizens to work for
them and to keep any profit in the process by unleashing the largest labour force in the world.
Chinese leader Xiao Ping earned the distinction of ‘Man of the Year’ by Time magazine in 1985.
One must remember that free markets can exist in China only with the state’s permission and
the operations of such markets are still overseen by government officials. China’s economic
system has been termed as frontier capitalism by Business Week.
The degree of government control under socialism is somewhat less than under communism.
A socialist government owns and operates the basic major industries but leaves small business
to private ownership. Socialism is a matter of degree and not all the socialist countries are the
same. Earlier, a socialist country like Poland used to lean towards communism, which is evidenced
by its rigid control over prices and distribution system. France’s socialist system, in comparison,
is much closer to capitalism than it is to communism. At one time, Sweden was a role model of
what socialism could be but a middle road between communism and socialism could produce
stalled economic growth. Sweden’s economic decline is partly due to rapid expansion in
regulations and in the rising share of national income spent by central and local governments,
which changed from 45% during the early 1960s to 67% in 1986.
The philosophy of capitalism provides for a free market system that allows business, competition
and freedom of choice for both consumers and companies in a market oriented system in which
individuals, motivated by private gain, are allowed to produce goods or services for public
consumption under competitive conditions. Product price is determined by demand and supply.
This system serves the needs of society by encouraging decentralised decision-making, risk
taking and innovation. The results include product variety, product quality, efficiency and
relatively lower prices.
When compared with other two economic systems, there are degrees of capitalism. Japan, when
compared to United States, is relatively less capitalistic although practically all Japanese business
are privately owned, industries are very closely supervised by the state. Japan has the MITI and
other government agencies that vigorously advise companies on what to produce, buy and sell.
Japan’s aim is to allocate scarce resources in such a way as to efficiently produce those products
that have the best potential for the country.

Schandler examined the 200 largest companies in United States, Britain and Germany from the
1880s through 1940s and found that capitalism took different forms in each country. It was
“managerial capitalism” in the United States where managers with little ownership ran companies
and competed fiercely for markets and products. In Britain, “personal capitalism” took place as
owners managed their companies. In Germany, it was “cooperative capitalism” where
professional managers and companies were urged to share markets and profit among themselves.
No nation operates under pure communism or pure capitalism and most countries find it
necessary to make some compromise between the two extremes. Even Eastern bloc countries
provide incentives for their image building. China allows farmers to sell directly to consumers
in the local markets. Western European countries encourage free enterprise but intervene to
provide support and subsidies to steel and farm products. The United States is also not a perfect
model of capitalism. It has a support price for many dairy and farm products and has imposed
price controls from time to time. The International Monetary Fund carried out a survey on 29th
July, 1991 of selected East European countries and gave an overview of reforms carried out by
them (Table 3.1).

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