gm 2 econenv
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8/6/2019 GM 2 EconEnv
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Global Marketing- Schrage 2 1
Global Economic Global Economic Environment Environment
Chapter 2
Global Marketing- Schrage 2 2
Economic Integration Economic Integration
1900- only 10 percent integration 2000- 50 percent integration
– European Union– NAFTA– ECOWAS
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Capital movementsreplaced trade levels
Production “uncoupled”from employment
World economy dominate-country economies aresecondary
End of thecapitalism/socialismstruggle
E-commerce changes allmodels– Business and national
New realities New realities
Global Marketing- Schrage 2 4
Economic Indicators Economic Indicators Gross DomesticProduct
Total market value ofall goods and servicesproduced within anation’s borders
Measure of economicoutput
Gross DomesticIncome
GDP plus incomegenerated from non-resident sources– Example: money sent
to families in homecountries
– Profits from sellinggoods made in anothercountry in the home
country
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Economic Systems Economic Systems
Type of economy
Type of government
Trade and capital flows The commanding heights
State provided services funded bytaxation
Institutional transparency Free markets/entrepreneurial behavior
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Economic System Structures Economic System Structures
ResourceAllocation
Private Private
State State
Market Command Market Command
MarketMarketCapitalismCapitalism
CentrallyCentrallyPlannedPlannedCapitalismCapitalism
MarketMarketSocialismSocialism
CentrallyCentrallyPlannedPlannedSocialismSocialism
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Heritage Foundation Heritage Foundation Economic Freedom Economic Freedom
Free– 20 nations (includes US)
Mostly Free– 52 nations
Mostly Unfree– 73 nations
Repressed Unrated
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Stages of Market Stages of Market Development Development
LowLow--Income CountriesIncome CountriesGNP < $825GNP < $825
LowerLower--middlemiddle--income Countriesincome CountriesGNPGNP ≥ $826 ≤≥ $826 ≤ $3,255$3,255
HighHigh--Income CountriesIncome CountriesGNP > $10,666GNP > $10,666
UpperUpper--middlemiddle--income Countriesincome CountriesGNPGNP ≥ $3,256 ≤≥ $3,256 ≤ $10,065$10,065
86% of the86% of theworld’sworld’s
populationpopulation
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BOP Myths BOP Myths Poor have NO money Poor are too concerned with satisfying basic
needs to “waste” money on non-essential items Goods sold in developing markets are too
inexpensive for new entrants to make a profit. Individuals in BOP markets cannot use advanced
technology Global companies targeting BOP countries will be
criticized for exploiting the poor.
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Kopeyia, Ghana Kopeyia, Ghana
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True Nature of BOP True Nature of BOP market market
There is Money at the BOP
Ease of access to BOP markets
BOP Markets are brand-conscious– Extremely value conscious
BOP Market is connected
BOP Customers accept advancedtechnology readily
FORTUNE AT THE BOTTOM OFTHE PYRAMID, Prahalad
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The Market Development The Market Development Imperative Imperative
Create the capacity to consume– Affordability
• Single serve packaging• Creative purchasing plans
– Access• Intensity of distribution (walking distance)
– Availability
The Need for New Goods and Services Dignity and Choice Trust is a Prerequisite
FORTUNE AT THE BOTTOM OFTHE PYRAMID, Prahalad
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Philosophy for Developing Philosophy for Developing Products and Services Products and Services
for BOP market for BOP market
The basic economics of theBOP market are based on
small unit packages, low marginper unit, high volume, and high
return on capital employed.
FORTUNE AT THE BOTTOM OFTHE PYRAMID, Prahalad
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Twelve Principles of Twelve Principles of Innovation Innovation
Focus on priceperformance
Innovation requires hybridsolutions
Solutions must betransportable acrosscountries, cultures, andlanguages
Conserve resources-eliminate, reduce, recycle
Start with understandingof functionality
Process innovations are
just as critical
Deskilling work is critical
Education consumers onproduct usage
Products must work inhostile environments
Research on interfacesgiven nature of population
Innovations must reachthe consumer
Feature and Functionevolution in BOP marketscan be rapid
FORTUNE AT THE BOTTOM OFTHE PYRAMID, Prahalad
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Institutions and Groupings Institutions and Groupings
G8 OECD
The Triad
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Balance of Payments (the Balance of Payments (the other BOP) other BOP)
Record of economic transaction allover the world
Current and capital accounts Just like a company balance sheet
– Focus is on trade and cash flowexpenditures
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International Finance International Finance
Foreign exchange– Devaluation
• (one’s currency looses value in comparisonto another)
– Revaluation• Strengthening of currency value in relationto others
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PPP PPP-- Purchasing Power Parity Purchasing Power Parity
http://www.economist.com/markets/bigmac/
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BOP = Bottom of the Pyramid BOP = Bottom of the Pyramid
Tier 1PPP>$20,000
Tier 5PPP <$1,500
Tier 2PPP = $1,500
Tier 2-3PPP $1,500-$20,000
FORTUNE AT THE BOTTOM OFTHE PYRAMID, Prahalad
75 to 100 million people 75 to 100 million people
1,500 to 1,750 million 1,500 to 1,750 million people people
4,000 million people 4,000 million people
4,000,000,000 4,000,000,000
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Currency Risk Currency Risk
Economic Exposure Reducing Exposure– Hedging– Forward Market
• Put option
• Call option
Global Marketing- Schrage 2 22CGBP BOOTCAMP 2008-Chris Schrage 22
Purchases aircraft from Boeing– 10% down payment– Rest upon delivery (5 years later)
Revenues of JAL in Yen Payments in USD In 1985- entered into 10 year forward exchange
contract– Value of Yen surged against dollar from ¥240 to ¥99 in
1994– Misjudgment cost JAL 86 percent more per each aircraft.
– Admitted loss of USD 45 million or ¥45 billion