chapter 4- components of a global market

8/3/2019 Chapter 4- Components of a Global Market

1/34

Components of a Global Environment


2/34

GLOBAL ENVIRONMENT

GLOBAL ENVIRONMENT: There are eight types ofglobal environments. They are:

1) Demographic Environment

2) Economic Environment

3) Natural Environment4) Technological Environment

5) Political Environment

6) Legal Environment

7) Social Environment

8) Cultural Environment


3/34

Demographic Environment:Demographic trends are highly reliable for the

short & intermediate run.

The main demographic force that marketers

monitor is population, because markets aremade up from people.

Marketers are keenly interested in the size andgrowth rate of population in cities, regions, andnations; age distribution and ethnic mix;educational levels; household patterns andregional characteristics & movements.


4/34

Worldwide Population Growth: The world populationis showing explosive growth. It totaled 6.1 billion in2000 and will exceed 7.9 billion by the year 2025.

Population growth highest in countries &communities that can least afford it.

In developing countries while the death rate hasbeen falling considerably due to modern medicine,the birth rate has remained fairly stable. Feeding,clothing and educating children, while alsoproviding a rising standard of living, is nearlyimpossible in these countries.

A growing population does not signify a growing

market unless these markets have sufficientpurchasing power. E.g. the Chinese Govt. in order tocurb the population has passed regulations limitingfamilies to one child. Hence these children arefussed and pampered and known as little

emperors in China.


5/34

These children are being showered witheverything from candies to computers as a

result of the six pocket syndrome. As many assix adultsgreat grandparents, grandparents,parents, and aunts & uncles- may be indulgingthe whims of each child.

This trend has encouraged toy companies likeJapans Bandai Company, Denmarks legogroup, and the USs Mattel to aggressively enterthe Chinese market.

Population Age Mix: National populations vary in

their age mix. At one extreme is Mexico, acountry with very young population & rapidpopulation growth.

At the other extreme is Japan,a country with

one of the worlds oldest population.


6/34

There is a global trend toward an agingpopulation.

A population can be subdivide into 6 agegroups: preschool, school age children, teens,young adults aged 25-40, middle-aged adultsaged 40-65, and older adults aged between 65and up.

For marketers, the most populous age groups (the most dominant age group in anypopulation) shape the marketing environment.

The American population is indicated by

various terms such as Baby Boomers (1946-1964), Gen-X (1965-1976), Gen-Y (1977-1999),Gen-Z (2000 onwards). Gen-Y & Gen-Z are alsoreferred to as Net-Gens- because of their

obsession, fluency & comfort with the Internet.


7/34

Sex Ratio/ Gender Issue:

Sex Ratio is ratio of men to women(No.of

Men:No. of Women)Gender is asocial construct& Sex is a

biological construct.

Thesex ratio provides an indication regarding

the need for goods & services that are sexspecific. Correspondingly, their marketingpotential will increase or decrease.

The term Gender refers to the socialperception regarding the roles played by men& women in the society. In a gender neutralsociety, more goods & services that are womenfriendly can be advertised and promoted.


8/34

Household Patterns:

Traditionally, we had joint families, then

changed to Nuclear families. Now there aremany others like single-live-alones, adult-live-togethers of one or both sexes, single-parentfamilies, childless married couples, doubleincome no kids(DINK).

More people are divorcing or separating,choosing not to marry, marrying later ormarrying without the intention to have children.

Each group has a distinctive set of needs &

buying habits. For example, people in the SSWDgroup ( single, separated, widowed, divorced)need smaller apartments, smaller appliancesetc. Marketers must consider the needs of non-

traditional households.


9/34

Each type of structure may require differentkinds of products & services.

Income Level: Income level of the populationdetermines its ability to use certain goods &services. This in turn determines the advertisingpotential.

Educational Level: The population in any societyfalls into distinctive groups based on theireducation. They could be illiterates, high schooldrop-outs, high school diplomas, collegedegrees, professional degrees. In Japan, 99% of

the population is literate. The educationalbackground will determine the kind of goodsand services that can be offered to thepopulation & the types of advertisements that

can be produced.


10/34

Economic Environment:

Economic Structure- The market situation is referredasEconomic Structure.

The economic level of a country is the single most importantenvironmental element to which the foreign marketer mustadjust the marketing task.

The stage of economic growth within a country affects theattitudes toward foreign business activity, the demand for

goods, distribution systems found within a country, and theentire marketing process.

In static economies, consumption patterns become rigid, andmarketing is typically nothing more than a supply effort.

In dynamic economies, consumption patterns change rapidly.

Marketing is constantly faced with the challenge of detecting& providing for new levels of consumption, and marketingefforts must be matched with ever-changing market needsand wants


11/34

Economic development presents a two-sidedchallenge.

1) A study of the general aspects of economic

development is necessary to gain empathy forthe economic climate within developingcountries.

2) The state of economic development must be

studied with respect to market potential,including the present economic level and theeconomys growth potential.

The current level of economic development

dictates the kind and degree of marketpotential that exists, while knowledge of thedynamism of the economy allows the marketerto prepare for the economic shifts and

emerging markets.


12/34

Economic development is generally understood

to mean an increase in national production thatresults in an increase in the average per capitagross domestic product(GDP).

GDP & GNP are two measures of a countrys

economic activity. GDP is a measure of themarket value of all goods & services producedwithin the boundaries of a nation, regardless ofasset ownership. Unlike GNP, GDP excludes

receipts from that nations business operations in

foreign countries, as well as the share ofreinvested earnings in foreign affiliates ofdomestic corporations.


13/34

Economic development, as commonly defined today, tendsto mean rapid economic growth- improvements achieved indecades rather than centuries- & increases in consumerdemand.

The United Nationsuses a system to classify a countrys stage ofeconomic development based on its level of industrialization. Itgroups countries into 3 categories: MDCs (more developedcountries)- industrialized countries with high per capita incomesuch as Canada, England, France, Germany, USA, Japan;LDCs(less-developed countries)- industrially developing

countries just entering world trade, many of which are in Asia &Latin America, with relatively low per capita incomes; andLLDCs(least-developed countries)- industrially under-developed, agrarian, subsistence societies with ruralpopulations, extremely low per capita income levels and little

world trade development. They are found in Central Africa &parts of Asia.

Th UN t h b iti i d b it


14/34

The UN system has been criticized because it nolonger seems relevant in the rapidly industrializingworld today. In addition, many countries that areclassified as LDCs are industrializing at a very rapid

rate while others are advancing at more traditionalrates of economic development.

Countries that are experiencing rapid economicexpansion & industrialization and do not exactly fitas LDC or MDCs are more typically referred to as

newly industrialized countries(NICs).These countrieshave shown rapid industrialization of targetedindustries & have per capita incomes that exceedother developing countries. They have institutedsignificant free-market reforms & therefore attract

both trade and foreign direct investment. Chile,Brazil, Mexico, South Korea, Singapore & Taiwan aresome of the countries that fit this description-exporters of steel, automobiles, machine tools,clothing, electronics as well as markets for importedgoods


15/34

Brazil, large exporter- exports alcohol, carbon,steel, orange juice, soy-beans,&weapons(worlds 6th largest weapon exporter).

Ships cars, trucks & buses to Third WorldCountries- Volkswagen has produce more than3 million VW Beetles in Brazil.

Markets require purchasing power as well as

people. The available purchasing power in aneconomy depends on current income, prices,savings, debt and credit availability.

Marketers must pay careful attention to trends

affecting purchasing power because they canhave a strong impact on business, especially, ifthe products are targeted to high-incomegroups and price-sensitive consumers.


16/34

There are four types of industrial structures-

1) Subsistence economies(few opportunities formarketers)- African countries.

2) Raw- material- exporting economies likeZaire(copper) and Saudi Arabia(Oil), with goodmarkets for equipment, tools, supplies and luxury

goods for the rich.3) Industrializing economies, like India, Egypt andthe Philippines, where a new rich class and agrowing middle class demand new types of

goods.4) Industrial economies, which are rich marketsfor all kinds of goods.


17/34

Income & Wealth Distribution in the

Economy-In global economy, marketers need to pay

attention to the shifting income distribution in

countries around the world, particularlywhere the affluence levels are increasing.

Marketers distinguish countries with 5

different income- distribution patterns-

1) very low incomes 2) mostly low incomes3) very low, very high incomes 4) low,

medium, high incomes and 5) mostly

medium incomes.


18/34

Currency Stability- Foreign Exchange Rate- Theforeign exchange rate is the rate at which thecurrency of a country is exchanged against thecurrency of another. It is the price of one currencyagainst another currency. The exchange betweenrupee & dollar refers to the number of rupees

exchanged or are required to be given to obtainone dollar.

Exchange rate is determined by the monetaryauthorities in a fully controlled system. Monetary

authorities decide the rate based on demand andsupply forces. In a free market, exchange rate isdetermined purely by market forces i.e. demand forand supply of foreign exchange.


19/34

Monetary Mechanism & Control: (Central Bank)Mechanism & Control refers to the policies that

are made by the Central Bank. It shows howeffective the banks policy could be.

Inflation: Too much money chasing too fewgoods.

Fiscal Measures: Taxation policies.

Natural Environment:

It comprises of I) Forests ii) Rivers iii) Climate

iv) Mineral wealth v) DisasterThe deterioration of the natural environment istoday a matter of global concern. Air & waterpollution have reached dangerous levels in

many cities of the world.


20/34

Greenhouse gases- due to the burning of fossil fuels

Depletion of the ozone layer due to certain

chemicalsIncreasing shortages of water- All of these and moreis of growing concern today.

In Western Europe- green parties have pressed forpublic action to reduce industrial pollution.

The recent problems concerning NaturalEnvironment may be indicated as:

a) Scarcity of resources due to unscrupulous usage.

b) Increase in pollution & the creation of Asian

Brown Haze- the pollution ring above the Asianscene is turning black from light brown. It hascreated a dent in the Ozone layer that leads toglobal warming in an overall manner. This leads tofloods and other disasters.


21/34

New regulations have hit certain industries badly.

Steel companies & public utilities have had to investin pollution control equipment & moreenvironmentally friendly fuels.

The auto industry introduced expensive emissioncontrols in cars. Companies, hopefully will adopt

practices that will protect the natural environment.Anti-Pollution measures- Industrial activity doesdamage the Natural Environment-chemicalpollutants, littering of environment with plastic,bottles and other packaging materials.

A large market has been created for pollution-control solutions such as recycling centers.

Governments in many countries promote a cleanenvironment- though the efforts vary- poorer nations

lack the funds or political will to do so.


22/34

Technological Environment:

Technology is today changing peoples lives.Technology has released big wonders that havebeen beneficial to mankind but also has seen somehorrors too.

The economys growth rate is affected by how

many major new technologies are discovered.Backward countries nave poor infrastructure, lack ofknow-how, lack of finance.

Developing countries have a steady economicgrowth, scientific advancement.

Highly developed countries- Media convergence,media boom- Virtual Reality- enabling an individualto experience a 3D effect in the internet. Fuzzy logictechnology- provides the 6th sense to consumer

durables like washing machines & refrigerators.


23/34

Political Environment:

Political environment is a comprehensive term,includes political parties, government agencies,pressure groups that influence and controlindividuals & organizations in society.

These factors may vary considerably betweennations. A country may have- Democracy,where there is maximum freedom; MilitaryRegime; Communist Regime or Monarchy.

However, irrespective of the type of political setup, trade and industry will flourish depending onthe stability of the government in the country.


24/34

Economic systems provide another base forclassification of governments. They can be-

Capitalist Economy, Socialist Economy, MixedEconomy.

In a capitalist / free market economy, anentrepreneur is free to invest and produce

goods of his choice. The government exercisesminimum control in planning and regulating theworking of market.

In a socialist economy, the govt. has absolutecontrol over various factors of production and itsallocation among various units. The govt.decides what to produce and what should beconsumed. This concept is now wearing out- thedownfall of Soviet Union has brought an end to

communist philosophy excepting in Cuba.


25/34

In mixed economy, a combination of capitalistand communist economic system. Allowsinvestments by private and public sectors.

A number of political risks also govern thepolitical environment such as social unrest in thecountry, unfriendly foreign policies of thegovernment.


26/34

Legal Environment:

Provides laws, rules, regulations and proceduralformalities laid down by the govt. there may be

laws related to every element of the marketingmix such as Product Quality, Pricing, Packaging,Cancellation of agreements etc.

Constitutional Provisions

Consumer protection Laws (Consumerprotection act of 1986, RTI, MRTP- Monopolies &Restrictive Trade Practices of 1969- yoga, haldi,neem- US & other nations trying for a patentright over them).

Legal machinery , through which grievances aresettled.

Parliamentary Act, generates from constitutionalpractices.

Public Awareness/ Public Activism.


27/34

Socio- Cultural Environment:Purchasing power is directed towards certaingoods and services and away from otheraccording to peoples tastes and preferences.Society shapes the beliefs, values and normsthat largely define these tastes and preferences

Views of themselves: People vary in the relativeemphasis they place on self-gratification. E.g.people who think they are pleasure seekerssought fun, change and escape on the other

hand others sought self realization. Marketersmust realize that there are many differentgroups of people with different views ofthemselves.


28/34

Views of others: People are concerned about the homeless,crime and other social problems at the same time they arealso people who are seeking out their own kind. These trendsportend a growing market for social support products such ashealth clubs, cruises, religious activities etc. they also suggest agrowing market for social surrogates things that allowpeople who are alone to feel they are not e.g. Chat rooms,social networking sitesORKUT, television etc.

Views of organizations: People vary in their attitudes towardscorporations, government agencies and other organizations.There has been an overall decline in organizations loyalty dueto various reasons such as downsizing, and lack of good

corporate governance e.g. Enron. So many see work as achore to earn money rather than earning job satisfaction. Suchan outlook has several marketing implications such as winningemployee and customer confidence, ensuring that they aregood corporate citizens and that their consumer messages arehonest


29/34

View of society: People vary in their attitude towardsociety, some defend it, some run it, some take whatthey can from it, some want to change it, some seekdeeper meaning from it. Consumption patternsoften reflect social attitudes. Makers tend to eat welland dress well, changers usually live more frugallyetc.

Views of nature: Some people feel subjugated withnature while other may feel in harmony with it. Along term trend has been mankinds growingmastery of nature through technology. Howevernow people have realized that nature can be

destroyed by human activities. Hence business haveevolved to protect nature by not using CFC gases,not undergoing animal testing etc. other businesshave evolved which takes people closer to nature

like white water rafting, hiking, camping etc.


30/34


31/34

High persistence of cultural values The people living in a particular society hold

many core belief and values that tend to persist.Core beliefs and values are passed on fromparents to children and are reinforced by major

social institutionsschools, temples, businessand governments. Secondary beliefs and valuesare more open to change. Thus marketers shallhave some chance of changing secondary

values but a little chance of changing corevalues.


32/34

Existence of subcultures Each society contains subcultures, groups whit

shared values emerging from their special lifeexperience or circumstances. Members ofsubcultures share common beliefs, preferences andbehaviors. To the extent that sub cultural groupsexhibit different wants and consumption behavior,

marketers can choose particular subculture astarget markets.

Marketers sometimes reap unexpected rewards intargeting subcultures. They have always loved

teenagers because they are society's trendsetters infashion, music, entertainment etc. Marketers alsoknow that if they attract someone as a teen there isalways a good chance they will keep the person asa customer later in life. E.g. Pepsi, Lays etc.


33/34

Shifts of secondary cultural values through time Although core values are fairly persistent,

cultural swings do take place. In the 1960shippies, the Beatles, Elvis Presley and othercultural phenomena had a major impact on

young peoples hairstyles, clothing and lifegoals. Todays young people are influenced bynewer heroes and activities.


34/34

chapter 4- components of a global market

Documents