CHAPTER 2

GLOBAL MARKETING ENVIRONMENT:

GLOBAL ECONOMIC
ENVIRONMENT

MR. MURUGA CHINNIAH

13 JAN 2009
TUESDAY (4-6PM)
Chapter Overview
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
 Introduction
In 2001, the annual global trade in
goods and services amounted to $7.4
trillion.
Daily international financial flows now
exceed $1.2 trillion.
From 1990 to 2000, world GDP grew
some 30 percent.
Total world exports of merchandise and
services increased by 80 percent.
Kotabe & Helsen's Global Marketing
3 Management, Third Edition, 2004 Chapter 2
 Introduction (contd.)
According to Standard & Poor’s Global Insight,
world exports of goods and services will reach
$11.4 trillion by 2005 (24% of world GDP).
The net result of these factors has been the
increased interdependence of
countries/economies and increased
competitiveness.
Consumers and companies in the U.S. and
Japan tend to be able to find domestic sources
for their needs since their economies are
diversified and extremely large.

Kotabe & Helsen's Global Marketing

4 Management, Third Edition, 2004 Chapter 2
Do you know?
The top 5 exporting countries of
merchandise?
The top 5 exporting countries of services?
The top 5 importing countries of
merchandise?
The top 5 importing countries of
commercial services?
The percentage of income Coca-Cola
derives from foreign markets?
The number of countries in which
McDonalds does business?
 Leading exporters in world merchandise trade,
2005
(in billions of dollars) (source: www.wto.org)

1000

900

800

700

600

500

400

300

200

100

0
Germ any U.S. China Japan France
Leading exporters in world commercial services
trade, 2005
(in billions of dollars) (source: www.wto.org)

400

350

300

250

200

150

100

50

0
U.S. U .K. Germ any France Japan
 Leading importers in world merchandise trade,
2005
(in billions of dollars) (source: www.wto.org)

2000

1800

1600

1400

1200

1000

800

600

400

200

0
U.S. Germ any China Japan U.K.
Leading importers in world commercial services
trade, 2005
(in billions of dollars) (source: www.wto.org)

300
250
200
150
100
50
0
U.S. Germany U.K. Japan France
Coca-Cola
80% of operating income is derived outside
the U.S.
Distributes its products in more than 160
countries
McDonalds Corporation

McDonalds does business in 120 countries

65% of total revenue is derived outside the
U.S.
 1. Intertwined World Economy
Despite the increasingly intertwined
world economy, the United States is still
relatively more insulated from the global
economy than other nations. In 2003,
the U.S. economy was about $10.5
trillion and imports about half as much
as it exports.
Over the next two decades, the big
emerging markets (BEMs) will hold the
greatest potential for U.S. exports.
Kotabe & Helsen's Global Marketing
12 Management, Third Edition, 2004 Chapter 2
 1. Intertwined World Economy
Ten Big Emerging Markets
(BEM’s)

Chinese Economic Poland

Area CEA (China, Turkey
HongKong, Taiwan) Assn of Southeast
India Asian Nations -
South Korea ASEAN
Mexico (Indonesia,Brunei,
Brazil Malaysia,Singapore
, Thailand,
Argentina
Philippines,
South Africa
Vietnam)
13 John Wiley & Sons, Inc c 1998
 THE BIG TEN

POLAND

SOUTH
TURKEY KOREA
CHINA
MEXICO
INDIA

BRAZIL INDONESIA

ARGENTINA SOUTH
AFRICA
 1. Intertwined World Economy
(contd.)
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.

Kotabe & Helsen's Global Marketing

16 Management, Third Edition, 2004 Chapter 2
 1. Intertwined World Economy
(contd.)
Cross-border mergers and acquisitions (M&As)
remain the main stimulus, especially in
developed countries.
The increase in foreign direct investment has
also been promoted by the efforts of many
national governments to persuade
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.

Kotabe & Helsen's Global Marketing

17 Management, Third Edition, 2004 Chapter 2
 1. Intertwined World Economy
(contd.)
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.

Kotabe & Helsen's Global Marketing

18 Management, Third Edition, 2004 Chapter 2
 1. Intertwined World Economy
(contd.)
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.

Kotabe & Helsen's Global Marketing

19 Management, Third Edition, 2004 Chapter 2
 2. Country Competitiveness
Country competitiveness refers to the
productiveness of a country, which is
represented by its firms’ domestic and
international productive capacity.
Country competitiveness is not a fixed
thing.
The role of human skill resources has
become increasingly important as a
primary determinant of industry and
country competitiveness
Kotabe & Helsen's Global Marketing
20 Management, Third Edition, 2004 Chapter 2
 2. Country Competitiveness
(contd.)
The Institute of Industrial Policy Studies’ country
competitiveness report of 2002 placed two Asian
Tigers (Hong Kong and Singapore) among the
world’s top 10 economies along with the United
States, Finland, Sweden, Belgium, the United
Kingdom, Germany, Norway, and Canada.
Although the United States and Switzerland have
been the most innovative in the last three
decades, other Organisation for Economic Co-
operation and Development (OECD) countries
have been catching up.

Kotabe & Helsen's Global Marketing

21 Management, Third Edition, 2004 Chapter 2
 3. Evolution of Cooperative Global
Trade
Agreements
 ITO (International Trade Organization):
 ITO was established after World War II.
 GATT (General Agreements on Tariffs
& Trade):
 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.

Kotabe & Helsen's Global Marketing

24 Management, Third Edition, 2004 Chapter 2
 3. Evolution of Cooperative Global
Trade
Agreements (contd.)
 WTO (World Trade Organization Trade):
 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 January 1, 2002, WTO had 144
member
 countries.
 WTO has statutory powers to adjudicate
trade disputes among nations and has its
own secretariat.

Kotabe & Helsen's Global Marketing

25 Management, Third Edition, 2004 Chapter 2
 3. Evolution of Cooperative Global
Trade
Agreements (contd.)
 WTO is the new legal and institutional
foundation for a multilateral trading system.
 WTO’s ninth round---called the “Doha
Development Agenda” (Doha Round)
was launched in Doha, Qatar in
November 2001 (see Exhibit 2-5).
 The Doha Round of 2001 also facilitated
the way for China and Taiwan to get full
membership in the WTO.

Kotabe & Helsen's Global Marketing

26 Management, Third Edition, 2004 Chapter 2
 3. Evolution of Cooperative Global
Trade
Agreements (contd.)
Although WTO is a global institutional proponent of
free trade, it is not without critics.
The WTO 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.

Kotabe & Helsen's Global Marketing

27 Management, Third Edition, 2004 Chapter 2
 4. U.S. Position in Foreign Direct
Investment
and Trade
The United States has been a significant
overseas investor since 1945.
The first wave of major investment was part
of the Marshall Plan in the 1950s.
Most U.S. investment abroad has been
concentrated in Europe.
In 2000, U.S. firms invested $162 billion
overseas.
Firms based in Britain and the Netherlands
have been the largest investors in the United
States.
Kotabe & Helsen's Global Marketing
28 Management, Third Edition, 2004 Chapter 2
 4. U.S. Position in Foreign Direct
Investment
and Trade (contd.)
Throughout the last decade, firms based in
Britain, Japan, and the Netherlands were the
largest investors in the United States.
Regarding the balance of payments (BOP), the
United States has run a persistent deficit on the
current account since the first oil shock in 1973.
There is increasing concern that the
conventional measures of the deficit may not
accurately reflect a country’s transactions with
the rest of the world.

Kotabe & Helsen's Global Marketing

29 Management, Third Edition, 2004 Chapter 2
 5. Information Technology and the
Changing
Nature of Competition

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.
Kotabe & Helsen's Global Marketing
30 Management, Third Edition, 2004 Chapter 2
 5. Information Technology and the
Changing
Nature of Competition (contd.)

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.

Kotabe & Helsen's Global Marketing

31 Management, Third Edition, 2004 Chapter 2
 6. Regional Economic
Arrangements

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.
Kotabe & Helsen's Global Marketing
32 Management, Third Edition, 2004 Chapter 2
 6. Regional Economic Arrangements
(contd.)

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 & FTAA
(proposed)
Customs Union: Addition of common external
tariffs to the provisions of free trade
agreements. Example: ASEAN.

Kotabe & Helsen's Global Marketing

33 Management, Third Edition, 2004 Chapter 2
 6. Regional Economic Arrangements
(contd.)
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.

Kotabe & Helsen's Global Marketing

34 Management, Third Edition, 2004 Chapter 2
 6. Regional Economic Arrangements
(contd.)
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.

Kotabe & Helsen's Global Marketing

35 Management, Third Edition, 2004 Chapter 2
 7. Multinational Corporations
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 65,000 MNCs with
850,000 affiliates in foreign countries.
MNCs’ total sales amount to almost $19
trillion.
Kotabe & Helsen's Global Marketing
37 Management, Third Edition, 2004 Chapter 2
 7. Multinational Corporations
(contd.)
One third of multinational companies’ trade is
accounted for by intra-firm activities.
Two-thirds of of world trade in goods and
services is controlled by multinational
companies.
Of the 100 largest economies in the world, 51
are corporations.
The sovereignty of nations will perhaps continue
to weaken due to multinationals and the
increasing integration of economies.

Kotabe & Helsen's Global Marketing

38 Management, Third Edition, 2004 Chapter 2
 7. Multinational Corporations
(contd.)
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.

Kotabe & Helsen's Global Marketing

39 Management, Third Edition, 2004 Chapter 2
 7. Multinational Corporations
(contd.)
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 startup firm to
become global at its inception. Those
firms are known as “born global.”

Kotabe & Helsen's Global Marketing

40 Management, Third Edition, 2004 Chapter 2
 THANK YOU

SEE YOU TOMMOROW ON TUTORIAL

PREPARE FOR PRESENTATION……