Transcript global marketing management - Cal State LA

Global Marketing Management, 5e
1
Chapter 2
Economic
Environment
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 2
Chapter Overview
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1. Intertwined World Economy
2. Country Competitiveness
3. Evolution of Cooperative Global Trade Agreements
4. U.S. Position in Foreign Direct Investment and Trade
5. Information Technology and the Changing Nature of
Competition
6. Regional Economic Arrangements
7. Multinational Corporations
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 2
Introduction
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In 2008, the annual global merchandise trade
amounted to $16.8 trillion.
From 1997 to 2007, world GDP grew more than 30
percent.
In the same period, total world exports of
merchandise increased by more than 60 percent.
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 2
Exhibit 2-1: Growth in the Volume of World
Merchandise Trade and GDP, 1997 - 2007
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Chapter 2
Introduction
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According to the World Trade Organization
(WTO), the top five merchandise exporting
countries in 2008 were:
Germany ($1,530 billion),
China ($1,465 billion)
United States ($1,377 billion)
Japan ($777 billion)
France ($630 billion)
Copyright (c) 2007 John Wiley & Sons, Inc.
Chapter 2
Introduction
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Collectively, the top five export nations accounted
for 35% of global trade in 2008.
The Triad Regions (North America, Western Europe,
and Japan) of the world collectively produced
nearly 60 percent of world GDP in 2007, down
from 78 percent in 2004.
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Chapter 2
Introduction
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The net result of these factors?
 Increased
interdependence of countries/economies
 Increased competitiveness
 Need for firms to keep a constant watch on the
international economic environment.
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Consumers and companies in the U.S. and Japan are
able to find domestic sources for their needs because
of their diversified and extremely large economies.
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Chapter 2
1. Intertwined World Economy
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Despite the increasingly intertwined world economy,
the United States is still relatively more insulated from
the global economy than other nations. In 2008, the
U.S. economy was about $14.3 trillion and imports
about 63% more than it exports.
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Chapter 2
Exhibit 2-2: Top 10 Exporters and Importers in
World Merchandise Trade, 2008
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Chapter 2
1. Intertwined World Economy
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The larger the country’s domestic economy, the less
dependent it tends to be on exports and imports
relative to its GDP.
Intertwining of economies by the process of
specialization due to international trade leads to job
creation in both the exporting and importing country.
Foreign direct investment (FDI) involves investment in
manufacturing and service facilities in a foreign
country.
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Chapter 2
1. Intertwined World Economy
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As firms invest in manufacturing and distribution
facilities outside their home countries to expand into
new markets around the world, they have added to
the stock of foreign direct investment.
The increase in foreign direct investment has also
been promoted by the efforts of many national
governments to woo multinationals.
Portfolio investment or indirect investment refers to
investments in foreign countries that are withdrawable
at short notice, such as investments in foreign stocks
and bonds.
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 2
Exhibit 2-3: Foreign Direct Investment Inflows,
1980 - 2007
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Chapter 2
1. Intertwined World Economy
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The weekly volume of international trade in currencies
exceeds the annual value of the trade in goods and
services.
All nations with even partially convertible currencies
are exposed to the fluctuations in the currency
markets.
A rise in the value of the local currencies make
exports more expensive; a rising currency value also
deters foreign investment in a country and may
encourage outflow of investment.
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Chapter 2
1. Intertwined World Economy
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Examples of severe currency fluctuations are the
1995 Mexican meltdown, and the Asian financial
crisis (1997-1999).
Unfortunately, the influence of these short-term money
flows are nowadays far more powerful regarding
exchange rates than an investment by a Japanese or
German automaker.
Recent examples of financial crisis occurred in
Argentina and Brazil (2002).
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Chapter 2
2. Country Competitiveness
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Country competitiveness refers to the productiveness
of a country, which is represented by its firms’
domestic and international productive capacity.
Country competitiveness is not fixed.
The role of human skill resources has become
increasingly important as a primary determinant of
industry and country competitiveness.
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Chapter 2
2. Country Competitiveness
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In 2008-9, one Asian Tiger (Singapore at #5) was
among the world’s top 10 economies. Others were
the U.S., Switzerland, Denmark, Sweden, Finland,
Germany, Netherlands, Japan and Canada (see
Exhibit 2-4).
Taiwan, another Asian Tiger, dropped from #5 to
#17 between 2005 and 2008.
The U.S. and Switzerland have been the most
innovative in the last three decades
Other OECD countries (especially Japan) have been
increasingly catching up.
(see Exhibit 2-5)
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Chapter 2
Exhibit 2-4: Global Competitiveness Ranking
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Chapter 2
Exhibit 2-5: Change in Country Innovativeness: A
Key to a Country’s Long-Term Competitiveness
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Chapter 2
3. Emerging Economies
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Over the next two decades, the big emerging markets
(BEMs) will hold the greatest potential for U.S. exports
Largest BEMs: Chinese economic area (including China,
Hong Kong region, and Taiwan), India, C.I.S. (Russia,
Central Asia, and the Caucasus states), South Korea,
Mexico, Brazil, and Argentina
B.R.I.C.- Brazil, Russia, India, China
Each BEM offers opportunities and challenges for
local policy makers, businesses and the international
business and economic community
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 2
Exhibit 2-6: Leading Emerging Economies in
2008
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Chapter 2
4. Evolution of Cooperative Global Trade
Agreements
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ITO (International Trade Organization):
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ITO was established after World War II.
GATT (General Agreements on Tariffs & Trade):
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After 1950, GATT succeeded ITO.
The main operating principle of GATT was the
concept of most favored nations (MFN).
GATT was successful in lowering trade barriers.
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 2
4. Evolution of Cooperative Global Trade
Agreements
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WTO (World Trade Organization):
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The eighth and last round of GATT talks – called the
Uruguay Round (1986-1994) established an
international body called the WTO which took effect on
January 1, 1995.
As of July 2008, WTO had 153 member countries.
WTO has statutory powers to adjudicate trade disputes
among nations and has its own secretariat.
WTO is the new legal and institutional foundation for a
multilateral trading system.
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Chapter 2
4. Evolution of Cooperative Global Trade
Agreements
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WTO’s ninth round---called the “Doha
Development Agenda” (Doha Round) was launched
in Doha, Qatar in November 2001 (see Exhibit 27). Interim deal in December 2005 to end farm
export subsidies by 2013 prevented collapse of
the latest round of the talks.
The Doha Round of 2001 facilitated the way for
China and Taiwan to get full membership in the
WTO.
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Chapter 2
Exhibit 2-7: Agenda for the Doha Round
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Chapter 2
4. Evolution of Cooperative Global Trade
Agreements
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Although WTO is a global institutional proponent of
free trade, it is not without critics.
The WTO dispute settlement mechanism is faster,
more automatic, and less susceptible to blockages
than the old GATT system.
The WTO Work Program on Electronic Commerce is in
the process of defining the trade-related aspects of
electronic commerce that would fall under the
parameters of WTO mandates.
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Chapter 2
5. Information Technology and the Changing
Nature of Competition
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Information technology and the changing nature of
competition have created many challenges for the
firms.
Over the Internet, any piece of electronically
represented intellectual property can be copied.
The Trade Related Aspects of Intellectual Property
Rights (TRIPS) Agreement was concluded as part of
the GATT Uruguay Round. Update to accord ensuring
patent protection does not block developing countries’
access to affordable medicines is the top of the
agenda.
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Chapter 2
5. Information Technology and the Changing
Nature of Competition
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Proliferation of E-Commerce and Regulations: Countries’
regulators have not kept pace with the rapid
proliferation of international e-commerce and
Internet-related activities.
In many countries, rules and regulations are vague
regarding e-commerce transactions.
The United Nations Commission on International
Trade Law (UNCITRAL) has formed a Working
Group on Electronic Commerce to reexamine these
treaties.
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Chapter 2
6. Regional Economic Arrangements
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An evolving trend in international economic activity is
the formation of multinational trading blocs.
There are over 120 regional free trade areas
worldwide.
Market groups take many forms, depending on the
degree of cooperation and inter-relationships, which
lead to different levels of integration among the
participating countries.
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Chapter 2
6. Regional Economic Arrangements
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Types of Regional Economic Arrangements:
 Free
Trade Areas: Formal agreement among two or
more countries to reduce or eliminate customs duties
and nontariff barriers. Examples: NAFTA, MERCOSUR,
CAFTA-DR & FTAA (proposed and currently stalled)
 Customs Union: Addition of common external tariffs to
the provisions of free trade agreements. Example:
ASEAN.
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Chapter 2
6. Regional Economic Arrangements
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Common Market: Eliminates all tariffs and other barriers, adopts a
common set of external tariffs on nonmembers, and remove all
restrictions on the flow of capital and labor among member nations.
Example: European Union.
Monetary Union: Represents the fourth level of integration with a
single currency among politically independent countries. Example: EU
and the euro.
Political Union: Highest level of integration resulting in a political
union. Sometimes, countries come together in a loose political union for
historical reasons, as in the case of the British Commonwealth which
exists as a forum for discussion and common historical ties.
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Chapter 2
7. Multinational Corporations
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The U.S. government defines a multinational
corporations (MNC) for statistical purposes as a
company that owns or controls 10 percent or more of
the voting securities, or the equivalent, of at least one
foreign business enterprise.
At present, there are 78,000 MNCs with 780,000
affiliates in foreign countries.
MNCs’ total sales exceeded 52% of world GDP in
2006.
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Chapter 2
7. Multinational Corporations
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In 1970, of the 7,000 multinationals identified by the
United Nations, more than half were from two
countries: the United States and Britain.
By 1995, less than half of the 36,000 multinationals
identified by the United Nations came from four
countries: the United States, Japan, Germany, and
Switzerland.
The nation-state, while considerably weaker than its
nineteenth century counterpart, is likely to remain
alive and well.
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Chapter 2
Exhibit 2-8: Outward Foreign Direct Investment (FDI)
Stock and Employment in Foreign Affiliates, 1982-2006
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Chapter 2
7. Multinational Corporations
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Currently, factors such as currency movements, capital
surpluses, faster growth rates, and falling trade and
investment barriers have all helped multinationals
from other countries join the cross-border fray.
It is not unusual for a start-up firm to become global
at its inception. Those firms are known as “born
global.”
Copyright (c) 2009 John Wiley & Sons, Inc.
Chapter 2