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BUSI 338 > Chapter 4: The Economic Environment > Flashcards

Chapter 4: The Economic Environment Flashcards

1
Q

Population

A

Total world population: expected to close in on eight billion by 2025.

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2
Q

Age distribution and life expectancy correlate heavily with…

A

the level of development of the market.

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3
Q

Household

A

All the persons, both related and unrelated, who occupy a housing unit.

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4
Q

Income

A

Per capita GDP:
- USA: $54629
- Canada: $50,271
- China: $7593
- India: $1595
(World Bank 2014 Data, in USD).

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5
Q

Purchasing power parities (PPPs)

A

Show how many units of currency are needed in one country to buy the amount of goods and services that one unit of currency will buy in another country.

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6
Q

PPP-adjusted Per capita GDP:

A
  • USA: $54629
  • Canada: $44,088
  • China: $13,216;
  • India: $5707
    (World Bank 2014 Data, in USD).
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7
Q

Consumption patterns

A

Economic data on consumption patterns can be obtained and analyzed depending on the sophistication of a country’s data collection system.
- In large markets (e.g., China, India, and the U.S.), uniformity across regions should not be assumed.

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8
Q

Engel’s laws state that as a family’s income increases:

A
  • Percentage spent on food will decrease.
  • Percentage spent on housing and household operations will be roughly constant.
  • Amount saved or spent on other purchases will increase.
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9
Q

Infrastructure

A

The facilitating functions of marketing:
- Marketing communications (telephones, computers, broadcast media, print media, internet, wireless technology)
- Transportation network (land, rail, waterway, or air)
- Financing

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10
Q

Factors impeding economic growth

A
  • Infrastructure limits
  • Labor shortages
  • Demand for greater political freedom
  • Environmental destruction
  • Urban congestion
  • Spread of drug addiction
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11
Q

Economic integration in regional markets

A

Circle (From middle to outside)
- Free Trade Area: Free trade among members. Goods and services are freely traded among member countries (North America Trade Agreement).
- Customs Union: Common External Trade Policy. Establishes a common trade policy with respect to nonmembers (Southern African Customs Union).
- Common Market: Factor Mobility. Factors of production are mobile, so capital, labor, and technology may be employed in their most productive uses (Central Amerian Common Market).
- Economic Union: Harmonization of Economic Policies. Members harmonize monetary policies, taxation, and government spending, common currency is to be used by members (European Union).

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12
Q

European Integration: what does it result in?

A

It results in economic growth.

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13
Q

European Integration: Sources of growth being

A
  • Elimination of transaction costs.
  • Economies of scale attained as production becomes concentrated.
  • More intense competition among European companies.
  • Operations from one country can be freely expanded to other countries.
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14
Q

NAFTA

A

North American Free Trade Agreement
- The ratification of the North American Free Trade Agreement (NAFTA) created the world’s largest free market:
460 million consumers and a total output of nearly 17.5 trillion.

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15
Q

Emerging Market

A

A country making an effort to change and improve its economy:
- Raising its performance to that of the world’s most advanced nations.

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16
Q

Strategies adopted by marketers to thrive in emerging markets:

A
  • Adjust entry strategy
  • Manage affordability
  • Invest in distribution
  • Build strong brands to compete with local brands
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17
Q

Five elements of success for an international marketer to thrive in developing markets

A
  • Research
  • Create buying power (e.g., consumer credits)
  • Tailor local solutions
  • Improve access (to overcome the economic and physical isolations of poor communities)
  • Shape aspirations
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18
Q

The main dimensions of a market can be captured by considering variables such as…

A

Those relating to:
- Population and its various characteristics
- Infrastructure
- Social development

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19
Q

The number of people in a particular market provides one of the most basic indicators of…

A
  • Market size
  • Potential demand for certain staple items that have universal appeal and are generally affordable.
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20
Q

Where are the greatest population densities in the world found and what does it provide?

A

The greatest population densities are to be found in Europe, providing the global marketer with a strategically located center of operation and ready access to the major markets of the world.

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21
Q

What is something that correlates with the level of development of a market?

A

Age distribution and life expectancy

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22
Q

What is an important variable for the international marketer?

A

The size of the household.

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23
Q

What is one factor behind the overall growth in households, and the subsequent decline in their average size?

A

The increase in the numbers of divorced and sole-survivor households.

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24
Q

How does the concept of urbanization change?

A

The concept of urbanization has different meanings depending on where one operates.
- In the United States, an urban area is defined as a place of 2,500 or more inhabitants; in Sweden, it is a built-up area with at least 200 inhabitants with no more than 200 meters between houses; in Mauritius, it is a town with proclaimed legal limits. Comparability, therefore, is concerned with the ends and not the means (or the definition).

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25
Q

Purchasing power is a function of:

A
  • Income
  • Prices
  • Savings
  • Credit availability
26
Q

World markets can be divided into four tiers of consumers based on broad measures of income

A

Tier 1: Consumers in developed markets, but also includes the rich elites in developing markets.
Tier 2: Lower-income segments in developed markets
Tier 3: Rising middle-class consumers in emerging markets.
Tier 4 and 5: Consumers in developing markets.

27
Q

What is income most indicative of?

A

The market potential for most consumer and industrial products and services.

28
Q

What is a primary indicator for evaluating purchasing power?

A

Per capita GDP

29
Q

An international marketer can use income classification as a planning guide, that is:

A
  1. Very low family incomes. Subsistence economies tend to be characterized by rural populations in which consumption relies on personal output or barter. Some urban centers may provide markets. Example: Cameroon.
  2. Very low and very high family incomes. Some countries exhibit strongly bimodal income distributions. The majority of the population may live barely above the subsistence level, but there is a strong market in urban centers and a growing middle class. The affluent are truly affluent and consume accordingly. Examples: India, Mexico.
  3. Low, medium, and high family incomes. Industrialization produces an emerging middle class with increasing disposable income. The very low and very high income classes tend to remain for traditional reasons of social class barriers. Example: Portugal.
  4. Mostly medium family incomes. The advanced industrial nations tend to develop institutions and policies that reduce extremes in income distribution, resulting in a large and comfortable middle class able to purchase a wide array of both domestic and imported products and services. Example: Denmark
30
Q

When may the per capita income figures not be a true reflection of purchasing power?

A

If the currencies involved are distorted in some way.
You use PPPs instead.

31
Q

In general, at what part of the screening of markets are income figures useful?

A

In the initial screening of markets

32
Q

Why may a monetary measure not be a proper and all-inclusive measure of income?

A

For example, in developing economies where most of the consumption is either self-produced or bartered, reliance on financial data alone would seriously understate the standard of living. Further, several of the service-related items (for example, protective services and travel), characteristic of the industrialized countries’ national income figures, do not exist for markets at lower levels of development.

33
Q

What do Engel’s laws provide?

A

Some generalizations about consumers’ spending patterns and are useful generalizations when precise data are not available.

34
Q

What is data on product saturation of diffusion, and what does it inform?

A

It is information on the percentage of households in a market that own a particular product.
It allows a further evaluation of market potential.

35
Q

Why is inflation a general problem for marketers?

A

Inflation affects the ability of both industrial customers and consumers to buy and also introduces uncertainty into both the marketer’s planning process and consumers’ buying habits.

36
Q

How may the marketer have to change in high-inflation markets?

A

The marketer may have to:
- make changes in the product (more economical without compromising quality)
- promotion (more rational)
- distribution (more customer involvement) to meet customer needs and maintain demand.
In response to rapidly escalating prices, a government will often invoke price controls. The setting of maximum prices for products may cause the international marketer to face unacceptable profit situations, future investments may not be made, and production may even have to be stopped.

37
Q

How important is infrastructure in evaluating marketing operations abroad?

A

The availability and quality of an infrastructure is critically important in evaluating marketing operations abroad.
Each international marketer will rely heavily on services provided by the local market for transportation, communication, and energy as well as on organizations participating in the facilitating functions of marketing: marketing communications, distributing, information, and financing.

38
Q

How can developing communication channels broaden the international market?

A

Developments in television, cable, phone, and wireless technologies not only will make the market broader but will also allow for more services to be delivered more efficiently.

39
Q

Physical Quality of Life Index (PQLI)

A

A composite measure of the level of welfare in a country.

40
Q

What are the three components of PQLI?

A
  • Life expectancy
  • Infant mortality
  • Adult literacy rates
41
Q

What do the three components of the PQLI indicate?

A

Provide a comparison of progress through time in all of the countries of the world.

42
Q

How do people’s level of contentment change as societies attain a certain level of wealth?

A

As societies attain a certain level of wealth, income becomes less of a factor in people’s level of contentment. Emotional well-being may be determined by the quality of social relationships, enjoyment at work, job stability, and overall conditions in the country (such as democratic institutions).

43
Q

Why have countries wanted to engage in economic cooperation?

A

To use their respective resources more effectively and to provide larger markets for member-country producers.

44
Q

The success of economic cooperation blocs depends on:

A

1) the leadership of selected countries
(i.e., every bloc needs an “engine”)
2) their proximity in terms of geography, culture, administrative dimensions, and basic economic factors
3) their commitment to regional cooperation.

45
Q

What is the EEC?

A

European Economic Community

46
Q

What are the “four freedoms” that the EEC was based on?

A

Mobility of:
- Goods
- Services
- Labour
- Capital

47
Q

How do the “four freedoms” lead to economic growth within the EU?

A
  1. there will be gains from eliminating the transaction costs associated with border patrols, customs procedures, and so forth.
  2. economic growth will be spurred by the economies of scale that will be achieved when production facilities become more concentrated.
  3. There will be gains from more intense competition among European companies. Firms that were monopolists in one country will now be subject to competition from firms in other member countries.
  4. The introduction of the euro (symbol €) is expected to add to the efficiencies, especially in terms of consolidation of firms across industries and across countries.
  5. countries in Euro land will enjoy cheaper transaction costs and reduced currency risks, and consumers and businesses will enjoy price transparency and increased price-based competition.
48
Q

What is EMU?

A

Economic and Monetary Union. A single monetary policy for the 17 euro-area member states

49
Q

How has the move from the “common standards approach” to the “mutual recognition approach” created progress toward the goal of free movement of goods?

A

Under the common standards approach, EU members were forced to negotiate the specifications for literally thousands of products, often unsuccessfully. For example, because of differences in tastes, agreement was never reached on specifications for beer, sausage, or mayonnaise.
Under the mutual recognition approach, the laborious quest for common standards is, in most cases, no longer necessary. Instead, as long as a product meets legal and specification requirements in one member country, it may be freely exported to any other, and customers serve as the final arbiters of success.

50
Q

What is MERCOSUR?

A

Mercado Comun del Sur
Includes Brazil, Argentina, Paraguay, and Uruguay.

51
Q

What are the three main objectives of MERCOSUR?

A

1) establishment of a free trade zone
2) creation of a common external tariff system (i.e., a customs union)
3) free movement of capital, labor, and services.

52
Q

What is ASEAN?

A

Association of Southeast Asian Nations

53
Q

What is ECOWAS?

A

Economic Community of West African States

54
Q

How can improved economies benefit emerging-market countries?

A

Through higher personal income levels and better standards of living, more exports, increased foreign direct investment, and more stable political structures.

55
Q

How can developed countries benefit from the development of emerging markets?

A

The development of human and natural resources in emerging markets through increased international trading.

56
Q

What makes emerging markets strategically important?

A
  • Favorable consumer demographics
  • Rising household incomes
  • Increasing availability of credit
  • Increasing productivity resulting in more attractive prices
57
Q

Why do appropriate strategies have to be developed for each emerging market?

A

Because emerging markets differ from each other in substantial ways.

58
Q

What should the marketer secure regardless of the strategy implemented for any emerging market?

A

The company’s core competencies while being innovative.

59
Q

How to enter into emerging markets?

A
  • Adjust entry strategy
  • Manage affordability
  • Invest in distribution
  • Build strong brands
  • Research
  • Create buying power
  • Tailor local solutions
  • Improve access
  • Shape aspirations
60
Q

Why does regional economic integration create opportunities and potential problems for the international marketer?

A

It may have an impact on a company’s entry mode by favoring direct investment because one of the basic rationales of integration is to generate favorable conditions for local production and intraregional trade.
By design, larger markets are created with more potential opportunities. Harmonization efforts may result in standardized regulations, which in turn affect production and marketing efforts in a positive manner.

61
Q

Decisions regarding integrating markets must be assessed from four different perspectives:

A
  • the range and impact of changes resulting from integration
  • development of strategies to relate to these changes. (Develop a strategic response to the new environment to maintain a sustainable long-term competitive advantage)
  • organizational changes needed to exploit these changes (Whatever changes are made, they will require company reorganization).
  • strategies to influence change in a more favorable direction. (International managers, as change agents, must constantly seek ways to influence the regulatory environment in which they have to operate)

BUSI 338 (12 decks)

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