Global marketing - global economic environment

Global Marketing Management
Chapter 2Copyright (c) 2007 John Wiley & Sons, Inc. 1
Chapter 2
Global Economic
Environment

Chapter Overview
1. IntertwinedWorld Economy
2. Country Competitiveness
3. Evolution of Cooperative GlobalTradeAgreements
4. U.S. Position in Foreign Direct Investment andTrade
5. InformationTechnology and the Changing Nature of
Competition
6. Regional Economic Arrangements
7. Multinational Corporations

Long-term trends in value and volume of
merchandise exports, 1950-2010

Introduction
 The net result of increasing world trade is the
increased interdependence of countries/
economies and increased competitiveness and
the concomitant need for firms to keep a
constant watch on the international economic
environment.

1. Intertwined World Economy
 The larger the country’s domestic economy, the
less dependent it tends to be on exports and
imports relative to its GDP.
 Individuals (consumers and companies ) in US
and Japan tend to be able to find domestic
sources for their needs as a result of diversified
and large economies

 How can Pakistan Increase FDI inflows?

Balance of Trade
Bilateral Trade Deficit

Portfolio Investment
Chapter 2 13

 The higher the per capita trade, the more
closely intertwined the country’s economy is
with the rest of the world.

 All nations with even partially convertible
currencies are exposed to the fluctuations in the
currency markets.
 A rise in the value of local currencies make
exports more expensive; deters foreign
investment in a country and may encourage
outflow of investment.

3. Emerging Economies
 Over the next two decades, the big emerging markets (BEMs)
will hold the greatest potential for U.S. exports
 The largest BEMs include the Chinese economic area
(including China, Hong Kong region, andTaiwan), India, C.I.S.
(Russia, Central Asia, and the Caucasus states), South Korea,
Mexico, Brazil, and Argentina
 B.R.I.C.S- Brazil, Russia, India, China, SouthAfrica

3. Emerging Economies

4. Evolution of Cooperative
Global Trade Agreements
 FreeTrade:
 https://www.youtube.com/watch?v=nvgZcc43wfg
 WTO (WorldTrade OrganizationTrade):
 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 February 16, 2005,WTO had 148 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.

 WTO’s ninth round---called the “Doha
Development Agenda” (Doha Round) was
launched in Doha, Qatar in November 2001
 The Doha Round of 2001 facilitated the way for
China andTaiwan to get full membership in the
WTO.

 Major issues and agendas ofWTO:
 Dispute Settlement Mechanism
 Trade in Financial Services
 TRIPS
 Global Agreements

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 different levels of integration
among the participating countries.

Arrangements
 Types of Regional Economic Arrangements:
 https://www.youtube.com/watch?v=YDUq0DINh
Yk
 FreeTradeAreas: Reduce/ 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.

Arrangements
 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: .
 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.

 The U.S. government defines a multinational
(MNC) for statistical purposes as corporations
a company that owns or controls 10 percent
or more of the voting securities, or the
equivalent, of at least one foreign business
enterprise.
 MNCs have
 At present, there are 70,000 MNCs with
690,000 affiliates in foreign countries.
 MNCs’ total sales exceed $19 trillion.

 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.

Global marketing - global economic environment

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