02:11
Ashish Saxena
Unit 4 The Economic Environment
Structure
4.1 Assessing the economic environment
4.2 Bases of economic wealth
4.2.1 Population
4.2.2 Size and growth
4.2.3 Immigration
4.2.4 Age distribution
4.2.5 Urbanisation
4.2.6 Capabilities
4.3 Natural Environment
4.3.1 Natural resources
4.3.2 Topography
4.3.3 Climate
4.3.4 Impact on country-market viability
4.3.5 Sustainability
4.4 Technological resources
4.4.1 Infrastructure
4.5 Indicators of economic wealth
4.5.1 Gross National Product (GNP)
4.5.2 Personal income
4.5.3 Exchange rates
Learning objectives:
After studying this unit you will be able to
Understand the importance of economic environment and the need for its
assessment for an international markets.
Understand various bases on which a country-markets wealth could be Understand the importance of natural and technological resources for a
country and its economic development.
Understand the various indicators used to measure economic wealth of a
country.
4.1 Assessing the Economic Environment
The macro-environment of a company strongly influences the structure and state
of its operating environment which, together with the firms resources and
capabilities determines its potential success. The economy of a country is a
major part of each company’s macro-environment. In addition, besides purely
economic factors such as the economic system or the existing industrial sectors,
a modern society is strongly characterised by its human, technological and
natural resources.
A marketer serving international markets or planning to go international is
confronted with a greater number of such economic environments. The
international marketer first has to determine the various characteristics of the
economic environment which are relevant for company’s business. (Fig. 4.1)
Having determined the relevant factors of influence from the economic
environment, the marketer will need to analyse their current state in the countrymarkets
under consideration. A full evaluation of the impact of those factors on
the potential success of the firm will only be possible, however, if management
also tries to anticipate the potential states of the relevant factors on the planning
horizon. For example, economic factors such as four years of recession, reduced
tariffs and strong yen compared to other leading currencies helped to increase
significantly Japanese purchases of imported food in the mid-1990s.
A comparison of the current states of the economic environments in the countrymarkets
served or being considered, and their potential developments, allow the
marketer to decide how to ‘manage’ those environments. That is, management
will be able to find ways of specifically reacting to the expected developments.
4.2 Bases of Economic Wealth
The economic wealth of a country is based on its human, natural and
technological resources. These resources affect a country's ability to produce
globally competitive goods and services and to offer a viable market for such
products. How resources are used is largely influenced by the economic system
of the country.
4.2.1 Population
The total population of a country, its growth rate, the distribution of age groups
within the population and the degree of urbanisation are of interest to many
international marketers. The size of a potential local product-market is a key
element in its viability. The distribution of age groups in a country is closely
related to the demand for certain products, and the degree of urbanisation
represents concentration of potential customers.
4.2.2 Size and Growth
Many international marketers are interested in rapidly developing markets in
China and India which together represent some 70 percent of Asia’s population
and about 40 percent of the population of the world. The size of the population
and its rate of growth affect a society’s ability to progress economically and
provide for the future.
However, population size without purchasing power is not economically
meaningful. This is a particular problem in developing countries, notably those in
Africa. Even when those countries experience positive economic growth, their
per capita economic growth is negative owing to the rapid rate of population
growth.
4.2.3 Immigration
Population growth could also be due to immigration. For example, between 1980
and 1990 almost 9 million immigrated into the USA. This inflow represented 39
percent of total population growth for that decade. For the international
marketers, this means the creation of new markets or the growth of traditionally
less important niches. Immigrants bring considerable job skills and investment
capital.
4.2.4 Age Distribution
The age composition of a population may also be of interest to international
marketers. As people become older, new markets emerge among older age
groups. For example, retirement villages have become popular in the USA,
Australia and Spain. The need for home-care services for elderly people is
growing and both retirement funds and retirement age insurance are booming.
4.2.5 Urbanisation
This term urbanisation refers to the proportion of a population that lives in cities.
The degree of urbanisation in a society is of interest to international marketers
because it represents concentration of potential customers. Also, urban areas
are centers of industrial productivity and economic growth.
Australia is the world’s most urbanised country, with 86 percent of its 15 million
people living in urban areas. For the international marketer, this is of particular
interest because urban and rural dwellers often have different consumption
patterns. Urban dwellers in different countries are more likely to have similar
consumption pattern than urban and rural consumers within the same country.
For example, urban women in Argentina, Brazil, Peru, Algeria and Moracco have
more similar consumption patterns with regard to cosmetics than do urban and
rural women within any one of those countries. In industrially developing
countries, such as India, international marketers are often unable to reach
consumers outside urban agglomeration.
4.2.6 Capabilities
The capabilities to be found in a country’s population have a significant influence
on its wealth. Because such capabilities are to some extent based on the
available knowledge, the nature of country’s educational system is of interest to
international marketers. This information helps the international marketer to
decide the appropriate marketing mix. The educational system also affects the
level of local technological know-how an international marketer can take
advantage of for example, manufacturers of highly sophisticated software for
industrial robots and control systems, such as Japan’s Oki or Germany’s
Siemens, choose the locations of their research and development units
according to the availability of advanced teaching institutions and research
laboratories.
4.3 Natural Environment
The natural environment of a country-market represents an important source of
potential wealth for its population. Natural resources, such as minerals, water
and water power, oil, coal or gas and the country’s climate and topography are a major determinant of the economic structures and interdependencies of a local
economy.
4.3.1 Natural Resources
The oil wells of the North Sea have made a major contribution to the economic
success of the UK and Norway. They might even be a major reason why the UK
can afford to follow a rather independent policy inside the EU and why Norway
was able to refuse European Union (EU) membership without suffering any
significant economic disadvantages.
4.3.2 Topography
Topography affects a country’s economic wealth in fundamental and enduring
ways. Topography as a product is illustrated by the examples of the beautiful
Maldive Islands of the Southwestern coast of India which atleast $ 30 million
worth of tourist income annually and the coast of Thailand which together with
the cultural treasures of Bangkok makes tourism the biggest foreign-currency
earner of the country.
Topography may also be a major constraint on a country’s economy as well as
for international marketing. It has a major impact on the cost and ease of
distributing an international marketers products. For example Zimbabwe, Nepal
or Switzerland, which does not have any coastline, must rely on the ports of
neighbouring countries to export goods by sea.
4.3.3 Climate
Climate is a part of country-markets natural environment that is closely linked to
the country’s economic development and functioning. The importance of climate
as a potential source of economic wealth is illustrated by the ability of Central
American countries to produce tropical fruits for export to countries where they
cannot be grown, because of different climatic conditions. For the international marketer, climate has a great deal to do with market
viability. Consumers living near the equator prefer different food products to
those living in milder climates. Heat and humidity result in lower levels of
production, and therefore income, particularly in countries with limited energy for
climate control and poorly developed infrastructure systems.
4.3.4 Impact on Country-Market Viability
How strong the influence of the natural environment, that is, present or absent
natural resources, topography and climate, can be on the economic development
of countries and their viability for international marketers is illustrated by the
countries in the Middle East. The rich oil producing countries of the Middle East
include Kuwait, Saudi Arabia and the United Arab Emirates. They have per
capita income of more than $ 19,000, 7,000 and 21,000 respectively. Their
normally stable governments are encouraging industrialisation by importing hightech
industrial goods, turnkey plants for food production, packaging, plastic and
metal treatment and construction material, as well as maintenance contracts and
industrial services. Those Middle Eastern countries constitute a generally
promising market for industrial goods.
4.3.5 Sustainability
In using resources from the natural environment of a country-market for their
business purposes, international marketers need to take care of the sustainability
of their activities. Sustainable production and marketing costs, but not
necessarily.
In many cases it provides increased customer satisfaction and secures
increasing return on investment.
4.4 Technological Resources
Managers of internationally operating companies need to be aware of differences
between technological environment of their home country and those of their various country markets. A lack of technological resources may make it difficult to
sell the marketer’s product and to satisfy customers. Differences in technological
development may also offer opportunities to market a firm’s product.
4.4.1 Infrastructure
A country’s infrastructure is the transportation, energy, communication and
commercial systems available to its population and industries. For international
marketing to be possible, a certain infrastructure has to be in place or needs to
be installed in a country-market. The level of development of a country’s
infrastructure affects the extent to which its natural resources can be used. The
level of development of a country’s infrastructure also determines how well its
human resources can be developed and used. Infrastructure also determines
whether international marketers can reach their potential markets. A large target
market with adequate buying power is of little value if goods and services cannot
be sold to customers because of a lack of transportation infrastructure, energy
shortage, faulty communications or lack of financial institutions.
4.5 Indicators of Economic Wealth
When assessing the attractiveness of country-markets, international marketers
require certain evaluation criteria to evaluate and compare economic
environments of potential and served markets.
4.5.1 Gross National Product (GNP)
GNP is a measure of the value of all the goods and services product by a nation.
GNP range from a mere $ 140 million for the Maldives to $ 6.4 trillion for the
United States. Although a higher GNP is generally regarded as an indicator of a
better market, GNP alone does not accurately reflect market potential. India’s
GNP of $ 1.7 trillion is much larger than Austria’s $ 134 billion’, yet the larger
number does not necessarily mean that India is a better market. A better
indicator can likely be derived by considering GNP together with population,
i.e. GNP/Capita, which measure market intensity. A country with a higher
GNP/Capita generally has a more advanced economy than a country with a
lower figure. In the case of Austria and India, Austria has a $ 17,000 GNP/Capita
and thus is much more attractive in terms of wealth than India, whose
GNP/Capita is only $ 1,300.
4.5.2 Personal Income
Personal income of its citizens is another indicator of a country’s wealth. Income
can reflect the degree of attractiveness of a market because consumption
generally rises as income increases. How the income is spent will provide
another clue to market potential. If a large portion of a persons income must go
towards purchases of essentials, market opportunities for luxuries may be
limited.
4.5.3 Exchange Rates
The exchange rate of a currency is its price in terms of another currency. This will
also help as a criterion for assessing the economic condition of a country.
Questions
1. What are the steps in analysing the economic environment ?
2. What are the uses of population of a country, its size and growth to an
international marketer ?
3. What is meant by urbanisation ? How it helps in assessing the economic
environment of a country ?
4. How does natural environment assessment help marketers in analysing
economic environment of a country ?
5. What are the various indicators of economic wealth of a country ?
Structure
4.1 Assessing the economic environment
4.2 Bases of economic wealth
4.2.1 Population
4.2.2 Size and growth
4.2.3 Immigration
4.2.4 Age distribution
4.2.5 Urbanisation
4.2.6 Capabilities
4.3 Natural Environment
4.3.1 Natural resources
4.3.2 Topography
4.3.3 Climate
4.3.4 Impact on country-market viability
4.3.5 Sustainability
4.4 Technological resources
4.4.1 Infrastructure
4.5 Indicators of economic wealth
4.5.1 Gross National Product (GNP)
4.5.2 Personal income
4.5.3 Exchange rates
Learning objectives:
After studying this unit you will be able to
Understand the importance of economic environment and the need for its
assessment for an international markets.
Understand various bases on which a country-markets wealth could be Understand the importance of natural and technological resources for a
country and its economic development.
Understand the various indicators used to measure economic wealth of a
country.
4.1 Assessing the Economic Environment
The macro-environment of a company strongly influences the structure and state
of its operating environment which, together with the firms resources and
capabilities determines its potential success. The economy of a country is a
major part of each company’s macro-environment. In addition, besides purely
economic factors such as the economic system or the existing industrial sectors,
a modern society is strongly characterised by its human, technological and
natural resources.
A marketer serving international markets or planning to go international is
confronted with a greater number of such economic environments. The
international marketer first has to determine the various characteristics of the
economic environment which are relevant for company’s business. (Fig. 4.1)
Having determined the relevant factors of influence from the economic
environment, the marketer will need to analyse their current state in the countrymarkets
under consideration. A full evaluation of the impact of those factors on
the potential success of the firm will only be possible, however, if management
also tries to anticipate the potential states of the relevant factors on the planning
horizon. For example, economic factors such as four years of recession, reduced
tariffs and strong yen compared to other leading currencies helped to increase
significantly Japanese purchases of imported food in the mid-1990s.
A comparison of the current states of the economic environments in the countrymarkets
served or being considered, and their potential developments, allow the
marketer to decide how to ‘manage’ those environments. That is, management
will be able to find ways of specifically reacting to the expected developments.
4.2 Bases of Economic Wealth
The economic wealth of a country is based on its human, natural and
technological resources. These resources affect a country's ability to produce
globally competitive goods and services and to offer a viable market for such
products. How resources are used is largely influenced by the economic system
of the country.
4.2.1 Population
The total population of a country, its growth rate, the distribution of age groups
within the population and the degree of urbanisation are of interest to many
international marketers. The size of a potential local product-market is a key
element in its viability. The distribution of age groups in a country is closely
related to the demand for certain products, and the degree of urbanisation
represents concentration of potential customers.
4.2.2 Size and Growth
Many international marketers are interested in rapidly developing markets in
China and India which together represent some 70 percent of Asia’s population
and about 40 percent of the population of the world. The size of the population
and its rate of growth affect a society’s ability to progress economically and
provide for the future.
However, population size without purchasing power is not economically
meaningful. This is a particular problem in developing countries, notably those in
Africa. Even when those countries experience positive economic growth, their
per capita economic growth is negative owing to the rapid rate of population
growth.
4.2.3 Immigration
Population growth could also be due to immigration. For example, between 1980
and 1990 almost 9 million immigrated into the USA. This inflow represented 39
percent of total population growth for that decade. For the international
marketers, this means the creation of new markets or the growth of traditionally
less important niches. Immigrants bring considerable job skills and investment
capital.
4.2.4 Age Distribution
The age composition of a population may also be of interest to international
marketers. As people become older, new markets emerge among older age
groups. For example, retirement villages have become popular in the USA,
Australia and Spain. The need for home-care services for elderly people is
growing and both retirement funds and retirement age insurance are booming.
4.2.5 Urbanisation
This term urbanisation refers to the proportion of a population that lives in cities.
The degree of urbanisation in a society is of interest to international marketers
because it represents concentration of potential customers. Also, urban areas
are centers of industrial productivity and economic growth.
Australia is the world’s most urbanised country, with 86 percent of its 15 million
people living in urban areas. For the international marketer, this is of particular
interest because urban and rural dwellers often have different consumption
patterns. Urban dwellers in different countries are more likely to have similar
consumption pattern than urban and rural consumers within the same country.
For example, urban women in Argentina, Brazil, Peru, Algeria and Moracco have
more similar consumption patterns with regard to cosmetics than do urban and
rural women within any one of those countries. In industrially developing
countries, such as India, international marketers are often unable to reach
consumers outside urban agglomeration.
4.2.6 Capabilities
The capabilities to be found in a country’s population have a significant influence
on its wealth. Because such capabilities are to some extent based on the
available knowledge, the nature of country’s educational system is of interest to
international marketers. This information helps the international marketer to
decide the appropriate marketing mix. The educational system also affects the
level of local technological know-how an international marketer can take
advantage of for example, manufacturers of highly sophisticated software for
industrial robots and control systems, such as Japan’s Oki or Germany’s
Siemens, choose the locations of their research and development units
according to the availability of advanced teaching institutions and research
laboratories.
4.3 Natural Environment
The natural environment of a country-market represents an important source of
potential wealth for its population. Natural resources, such as minerals, water
and water power, oil, coal or gas and the country’s climate and topography are a major determinant of the economic structures and interdependencies of a local
economy.
4.3.1 Natural Resources
The oil wells of the North Sea have made a major contribution to the economic
success of the UK and Norway. They might even be a major reason why the UK
can afford to follow a rather independent policy inside the EU and why Norway
was able to refuse European Union (EU) membership without suffering any
significant economic disadvantages.
4.3.2 Topography
Topography affects a country’s economic wealth in fundamental and enduring
ways. Topography as a product is illustrated by the examples of the beautiful
Maldive Islands of the Southwestern coast of India which atleast $ 30 million
worth of tourist income annually and the coast of Thailand which together with
the cultural treasures of Bangkok makes tourism the biggest foreign-currency
earner of the country.
Topography may also be a major constraint on a country’s economy as well as
for international marketing. It has a major impact on the cost and ease of
distributing an international marketers products. For example Zimbabwe, Nepal
or Switzerland, which does not have any coastline, must rely on the ports of
neighbouring countries to export goods by sea.
4.3.3 Climate
Climate is a part of country-markets natural environment that is closely linked to
the country’s economic development and functioning. The importance of climate
as a potential source of economic wealth is illustrated by the ability of Central
American countries to produce tropical fruits for export to countries where they
cannot be grown, because of different climatic conditions. For the international marketer, climate has a great deal to do with market
viability. Consumers living near the equator prefer different food products to
those living in milder climates. Heat and humidity result in lower levels of
production, and therefore income, particularly in countries with limited energy for
climate control and poorly developed infrastructure systems.
4.3.4 Impact on Country-Market Viability
How strong the influence of the natural environment, that is, present or absent
natural resources, topography and climate, can be on the economic development
of countries and their viability for international marketers is illustrated by the
countries in the Middle East. The rich oil producing countries of the Middle East
include Kuwait, Saudi Arabia and the United Arab Emirates. They have per
capita income of more than $ 19,000, 7,000 and 21,000 respectively. Their
normally stable governments are encouraging industrialisation by importing hightech
industrial goods, turnkey plants for food production, packaging, plastic and
metal treatment and construction material, as well as maintenance contracts and
industrial services. Those Middle Eastern countries constitute a generally
promising market for industrial goods.
4.3.5 Sustainability
In using resources from the natural environment of a country-market for their
business purposes, international marketers need to take care of the sustainability
of their activities. Sustainable production and marketing costs, but not
necessarily.
In many cases it provides increased customer satisfaction and secures
increasing return on investment.
4.4 Technological Resources
Managers of internationally operating companies need to be aware of differences
between technological environment of their home country and those of their various country markets. A lack of technological resources may make it difficult to
sell the marketer’s product and to satisfy customers. Differences in technological
development may also offer opportunities to market a firm’s product.
4.4.1 Infrastructure
A country’s infrastructure is the transportation, energy, communication and
commercial systems available to its population and industries. For international
marketing to be possible, a certain infrastructure has to be in place or needs to
be installed in a country-market. The level of development of a country’s
infrastructure affects the extent to which its natural resources can be used. The
level of development of a country’s infrastructure also determines how well its
human resources can be developed and used. Infrastructure also determines
whether international marketers can reach their potential markets. A large target
market with adequate buying power is of little value if goods and services cannot
be sold to customers because of a lack of transportation infrastructure, energy
shortage, faulty communications or lack of financial institutions.
4.5 Indicators of Economic Wealth
When assessing the attractiveness of country-markets, international marketers
require certain evaluation criteria to evaluate and compare economic
environments of potential and served markets.
4.5.1 Gross National Product (GNP)
GNP is a measure of the value of all the goods and services product by a nation.
GNP range from a mere $ 140 million for the Maldives to $ 6.4 trillion for the
United States. Although a higher GNP is generally regarded as an indicator of a
better market, GNP alone does not accurately reflect market potential. India’s
GNP of $ 1.7 trillion is much larger than Austria’s $ 134 billion’, yet the larger
number does not necessarily mean that India is a better market. A better
indicator can likely be derived by considering GNP together with population,
i.e. GNP/Capita, which measure market intensity. A country with a higher
GNP/Capita generally has a more advanced economy than a country with a
lower figure. In the case of Austria and India, Austria has a $ 17,000 GNP/Capita
and thus is much more attractive in terms of wealth than India, whose
GNP/Capita is only $ 1,300.
4.5.2 Personal Income
Personal income of its citizens is another indicator of a country’s wealth. Income
can reflect the degree of attractiveness of a market because consumption
generally rises as income increases. How the income is spent will provide
another clue to market potential. If a large portion of a persons income must go
towards purchases of essentials, market opportunities for luxuries may be
limited.
4.5.3 Exchange Rates
The exchange rate of a currency is its price in terms of another currency. This will
also help as a criterion for assessing the economic condition of a country.
Questions
1. What are the steps in analysing the economic environment ?
2. What are the uses of population of a country, its size and growth to an
international marketer ?
3. What is meant by urbanisation ? How it helps in assessing the economic
environment of a country ?
4. How does natural environment assessment help marketers in analysing
economic environment of a country ?
5. What are the various indicators of economic wealth of a country ?
0 comments:
Post a Comment