CH4

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CHAPTER 4 : The Economic Environment Learning Objectives: Understand the most basic variables that international marketers use in screening foreign markets Stages of economic development and how it impacts international business Market attractiveness based on : Population, Income, Consumption patterns, Infrastructure, Geography, Foreign Direct Investment in the economy Market size (potential) and unique characteristics. Economic environment within nation Regional economic integration and its impact on economic development

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The Global Economy (See Appendix A pp. 130-140) Industrialized Countries Less-Developed Countries (LDCs) Newly Industrialized Countries (NICs) Major Oil-Exporting Countries Middle-Income Countries Newly Emerging Democracies Some Frequently used Terminologies - Group of five(G5) : USA, Great Britain, France, Germany, Japan - Group of seven(G7) : G5 + Canada and Italy - Group of ten(G10) : G7 + Sweden, Netherlands and Belgium - NICs : Singapore, Taiwan, S.Korea, Hong Kong (4 Tigers of Pacific Rim) - Organization for Economic Cooperation and Development (OECD) : 29 Countries - Organization For Petroleum Exporting Countries (OPEC) Growing Interdependence of Countries

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Walt Rostow’s Stages of Economic Development Traditional Society : Low literacy, Absence of application of science and technology in major sectors of the economy Preconditions for Take-off : In the process of transition to take-off stage. Application of science and technology to agriculture, Investment in transportation, Communications, Power, Education, health and other public undertakings . The take-off : Characterized by high growth in GDP, Modernization and rapid expansion Drive to Maturity : Sustained Growth in GDP, Significant process in all sectors of the economy including trade. Demonstration of technological and entrepreneurial skills . Age of high mass consumption : Mass consumption of consumer of durable and non-durable goods and services. High per capita income, significant discretionary income and growth in service sector with (Higher percentage contribution to GDP)

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Market Characteristic Population - Households - Urbanization Income - Per capita GDP - Per capita Income - Per capita Discretionary Income - Purchasing power parity (PPP) Consumption Patterns - Per capita expenditures on basic needs, Transportation, Health, Education and leisure - Households owing of appliances, Autos, Computers,TVs - Household debt - Internet Infrastructure - Roadways, Railways, Airways, Water ways - Tele Communications Foreign Direct Investment in the economy Geography

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World Population Trends Population in millions

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Significant Populations Trends Developed world population declining Less developed countries population is increasing Median age is increasing Life expectancy is increasing Two countries with 1 billion or more population : China and India Population under 15 years : 30% Population over 65 years : 10% and increasing Increasing urbanization Population density : 50 per square mile Note : See http:// www.undp.org/popin/ for latest analysis review appendix A. (P.130) and understand well the indicators of market size for 115 countries. Also review the global comparison maps .

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Economic Environment within a nation Control of Economic activity and ownership of productive resources Market Economy Command Economy Mixed-Economy/Transition Economy Impact of economic environment on social development. * Physical quality of life index (PQLI) - Life expectancy - Infant mortality - Adult literacy rate Distribution of wealth/Income in the nation Note : Review the latest world bank publication : World Development Report, and Social Indicators

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Regional Economic Integration : Important mode of economic development Level of Economic Integration Free Trade Area (FTA) : Goods and Services are freely traded among member countries, example : NAFTA, AFTA, APEC Customs Union (CU) : FTA + Common trade policy with respect to nonmembers Common Market (CM) : CU + Free flow of factors of production (Labor, Capitol and Technology) between member countries Economic Union : CM + Integration of economic policies.Harmonize monetary policies, Taxation and Government spending Political Union : Economic union + Political Unification

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Economic Union Free trade area Free trade among members Common External Trade Policy Customs Union Factor Mobility Common Market Harmonization of Economic Policies Economic Union Regional Economic Trading Blocs Free Trade Area (FTA) Customs Union (CU) Common Markets Economic Union Political Union

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Major Regional Trading Blocs NAFTA (North American Free Trade Agreement) : Canada, Mexico, US EU ( European Union) : Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Portugal, Spain, Sweden United Kingdom EFTA ( European Free Trade) : Iceland, Liechtenstein, Norway, Sweden LAIA (Latin American Integration Association) : Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, Venezuela CARICOM (Caribbean Community) : Anguilla, Antigua, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat Jamaica, St. Kitts-Nevis, St. Vincent and the Grenadines, Trinidad CACM (Central American Common Market) : Costa Rica, El Salvador Guatemala, Honduras, Nicaragua MERCOSUR (Southern Common Market) : Argentina, Bolivia, Brazil, Chili, Paraguay, Uruguay

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(Continue) Major Regional Trading Blocs APEC (Asia Pacific Economic Cooperation) : Austria, Brunei, Canada, Chile, China, Hong Kong, Indonesia, Japan, Malaysia,Mexico, New Zealand, Papua New Guinea, Philippines, Singapore, South Korea, Taiwan, Thailand, United States SAARC (South Asian Association for Regional Cooperation): Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka ANCOM (Andean Common Market) : Bolivia, Colombia, Ecuador, Peru, Venezuela ECOWAS (Economic Community of West African States) : Benin, Burkina Faso, Cape Verde, Gambia, Ghana, Guinea, Mali,Guinea-Bissau, Ivory Coast, Liberia, Mauritania, Niger, Nigeria, Togo, Senegal, Sierra Leone GCC (Gulf Cooperation Council) : Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates

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