Chapter 2 - A Global Marketer’s Economics and Trade Perspective Flashcards
A Brief History
1990-1915: Boxer Rebellion in China, Russian-Japanese War. Global economic integration; 10%.
1915-1920: WW1.
1920-1929: Taxes, Tariffs and National Barriers.
1930-1939: Global Depression.
1940-1946: WW2 and Redefined Global Trade Routes.
1946-1955: Rebuilding after WW2.
1955-1990: Cold War.
1962-1974: Vietnam War.
1991 – USSR collapses; 15 independent countries created.
Brief History Summarized:
To summarize:
The first half of the twentieth century consisted of a major worldwide economic depression that occurred between two world wars that destroyed most of the industrialized world.
The last half of the century was marred by the Cold War between capitalist & socialist Marxist countries.
Throughout this time period, whenever there wasn’t a ‘World War’ occurring, the superpowers had ‘proxy’ wars through their smaller allies (Vietnam, Korea, etc.).
Does international economic integration:
Increase the probability of cross-border conflicts?
Decrease the probability of cross-border conflicts?
Have no effect on the probability of cross-border conflicts?
Post WW2 Recovery:
The Marshall Plan, sponsored by the United States, was launched to assist in rebuilding Europe.
Investments were made in underdeveloped countries to foster economic growth and help create a stronger world economy.
The dissolution of colonial powers (and trading routes) created opportunities for countries in Asia and Africa to gain economic independence.
For every dollar invested in the economic development and rebuilding of other countries after World War II, hundreds of dollars were returned to capital-supplying nations in the form of purchases of agricultural products, manufactured goods, and services.
This overseas demand for products was important to North American economies since the vast manufacturing base built in the United States had been focused on the ‘war effort’. The labour supply of returning military personnel was about to create an employment problem well beyond the needs of domestic consumption.
The last twenty years:
Russia’s economic weakness is now evident.
China’s economic strength and strategic plan is now evident.
Instability within the EU discourages investment.
America’s lack of ‘real’ international influence has created international instability.
The value of capital moving around the world (tracked by foreign exchange transactions) now exceeds the value of products.
There is no correlation between employment and production in developed countries; this is the result of automation and a shift to the services sector.
Macro-economics has become more important than micro-economics because global industries build manufacturing facilities in multiple countries.
E-Commerce and ‘container logistics’ magnify these features.
A Country’s Economic Structure (being a function of its Political System)
Type of Economy: agriculture, transition, developing or an advanced industrial country (or an urban/rural combination).
Democracy: single-party (a ‘false’ democracy), two-party, multiple?
Monarchy: with or without a democracy (with or without real influence).
Dictatorship: in singular control (usually through military control) or inserted by another country.
Trade Policies: open or restrictive.
Logistics Infrastructure: government or private ownership (ranging from ‘substantial’ to ‘non-existent’).
Education Systems: they often reflect on an organization’s ability to hire pre-trained staff.
Legal systems: consistent application and transparent, or corrupt?
Financial Markets: open and subject to (market-driven) micro and macro-economic factors, or under rigid government controls (being subject to political influence)?
Politically-Motivated Economic Structures
- Market-driven Capitalism
- Government-managed Capitalism
- Market-driven Socialism
- Government-managed Socialism
Market-Driven (Capitalistic) Organizations:
Organizations are independently owned; equity positions are publically traded.
Strategic planning is based on criteria beyond direct government control.
Government role is minimal; often limited to trade and consumer protection laws.
Diverse examples:
–> US – decentralized structure (state laws as powerful as federal laws).
–> Japan – centralized structure (federal laws are the dominant power).
Government-Managed Capitalism
Similar to market-driven capitalism, organizations are independently owned; equity positions are openly traded. However, strategic planning is based on criteria provided by the government (through a combination of restrictive laws and preferential tax structures).
An example would be a monopoly such as an electrical utility; it could be privately-owned but controlled through government legislation.
This model often follows a combination of business principles (such as making an acceptable profit with tolerable risk) and political motivation (using infrastructure capital investment for selective political gain).
Market-Driven Socialism
Organizations are often independently owned (through entitlement from government structures); they can also be government-owned but managed as independent entities.
Strategic planning is based on a combination of market demand and criteria provided by the government.
Government-Managed Socialism
The government owns and controls all industry, distribution.
This is an extreme example of ‘supply management’. Supply-and-demand market forces (in combination with pricing models) are meaningless; the government defines all parameters.
The result; a lack of innovation which creates a low-to-average quantity of low-quality products (ie: no high-quality goods).
Most countries that once followed this model (such as Russia or China) now acknowledge that private ownership under rigid government control is a more effective model.
Economic Freedom
Defined as the freedom to prosper within a country without intervention from a government or economic authority.
Individuals are free to secure and protect human resources, labour and private property.
Varying levels of economic freedom exist in capitalist economies but must incorporate other civil liberties to be recognized as being ‘truly free’ (very rare).
The scoring of various countries (as part of a third-party independent global survey) is based on a combination of key variables such as:
1. Tax, trade and banking policies.
2. Property rights.
3. The legal system.
4. Foreign investment.
5. Tolerance of a ‘Black Market’.
Economic Freedom – 2018 Rankings
1-10
172-180
Mistaken Assumptions about ‘Bottom-of-Pyramid’ Target Markets
The poor have no money.
The poor will not “waste” money on non-essential goods.
Entering developing markets cannot be profitable because products would need to be made too ‘cheap’ to still make a profit.
People in BOP (bottom of the pyramid) countries don’t have the basic knowledge to learn how to use technology.
Counter-point; doing business in poor countries is actually a form of exploiting; ethics become questionable.
Stages of Economic Development
The World Bank has defined four categories of development using Gross National Income (GNI) as a base.
In each country, factors such as income growth, inflation, exchange rates, and population change will influence the ‘GNI Category’.
To keep the dollar thresholds which separate the classifications fixed in real terms, values are adjusted for inflation.
Low-Income Countries
GNI per capita: $1,015 (2018)
Characteristics:
–> Limited industrialization; farming is the primary occupation.
–> High birth rates; low literacy rates.
–> Reliance on foreign aid.
–> A history of political instability.
Lower-Middle-Income Countries
GNI per capita: $1,006 to $3,955 (2018)
Characteristics:
–> Early stages of a consumer market.
–> Low wages: common for factory workers to not earn enough money to buy the products they produce.
–> Example: footwear, textiles and toys.
Upper-Middle-Income Countries
GNI per capita: $3,956 to $12,235 (2018)
Characteristics:
–> Rapidly industrializing, less agricultural employment.
–> Population is moving off farms and into cities.
–> Rising wages, a ‘middle class’, but still lower than high-income countries.
–> Rising literacy rates and education levels.
–> Substantial foreign direct investment.
–> Factory workers now make enough money to buy the products they produce.
G-7: The Group of Seven
Their Mandate; global economic stability and prosperity.
US
Japan
Germany
France
Britain
Canada
Italy
(Russia joined in 1998, changing the group to the G-8 but its membership was suspended in 2014 after it annexed the Crimean peninsula. (source: Council on Foreign Relations)
High-Income Countries
GNI per capita: $12,476 or more
Characteristics:
–> Moving from industrialized to post-industrial economy (serviced-focused countries).
–> Knowledge has a greater value than actual production.
–> As a result, ‘knowledge management’ (such as economics and finance) have a greater perceived value than ‘production management’ (such as operational engineering and semi-skilled trades staff).
