The international financial system
Global financing operations based on the gold standard gave rise to instability, so Bretton Woods, post World War II, saw the nascence of the International Monetary Fund (IMF) and World Bank.
The IMF deals with the International Monetary System. Involved countries joined IMF to establish a par value for other countries in terms of the US dollar and maintain it with +/- one percent of that value. The system fell down because large corporations were holding more funds than banks and so a "float" set in. IMF began to fade somewhat. However it still lends, on a short term basis, to countries with payment problems to help them continue trading.
The World Bank, or International Bank for Reconstruction and Development (IBRD) deals with international capital. It provides long term capital to aid economic development. Currently it has about US$ 22 billion annually for this operation. The role of the World Bank has often been criticised especially on its conditionalities for loans to Africa in funding structural adjustment and trade liberalisation programmes. However many developing countries require institutional funding to help them with trade and balance payment problems.
Other major lenders include the EU and bilateral donors and agencies who have provided money for developmental projects. A principal donor is the United States Agency for International Development (USAID).
The United States of America
Since the Gulf War of 1991, the USA has played an increasingly important role in the economic affairs of the world. Since that time, itself, and its agency USAID, have increasingly flexed their muscles. However, the balance of economic power in recent years, has shifted towards the Pacific rim, especially Japan and the Asian Tigers.
Individual economies
Whilst the global factors listed above have aided the development of a world economy, marketers must consider carefully individual economies. A study of these helps answer the questions - how big is the market and what is it like? Currently there are over 200 individual countries in the world.
Size of market
General indications of market size include population (growth rates and distribution) and income (distribution, per capita, GNP).
a) Population:In general, the larger the population, the bigger the market. However there is no correlation between income level and population. China has 2 billion plus people, India 1 billion, Zimbabwe 8 million. However, they do not have the same income per capita as the USA or UK. In 1993 the USA population of 252.2 million, the UK 57.4 million and Africa 400 million, were respectively 6%, 1.5% and 9% of the world's population. However the USA and UK had an infinitely higher GNP per capita income than Africa, US$ 22,520, UK $17,300 and Africa $ 270 respectively (1989).
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Different countries experience different population growth rates. In the early 90s, the UK had an annual growth rate of 0.1%, the Ivory Coast 6%, and Africa in general, 3% per annum. Low income countries and oil rich countries have the largest growth rates. Growth rates have a dual edge - they are good for sales but bad for world resources. The world population, currently standing at 5 billion is experiencing a rapid growth rate. It is expected to reach 7 billion by the end of the century. The strain on world resources is likely to be very large. The distribution of the population is also important. Different age groups have different needs and population density should mean good market potential, the higher the better. The Netherlands have 1000 persons per square mile, Bangladesh 1,791 but the USA only 65 persons per square mile. However, the USA spends more per capita than Bangladesh
b) Income: No one has yet been able to assess accurately the impact of the AIDS pandemic on world population and economic activity. South Africa estimates AIDS will cost South African industry R16.7 billion by the year 2000 (Business Herald - Nov. 24.1994). Suffice to say, unless a cure or prevention is found, it could be serious, especially in Africa and South East Asia, the world's "hot spots"
Income is the most important variable affecting market potential. Markets are not markets without money to spend. Interestingly, there is an inverse correlation between GNP per capita and income elasticity of demand for food. Asia has a 0.9 income elasticity of demand and the USA 0.16.
The distribution of income is very uneven. In Kenya the lowest 20% of the population receive less then 3% of national resource. This bimodal distribution of income means marketers must analyse two economies in a country. Per capita measures have therefore, many limitations. Per capita judges a country's level of economic development and its degree of modernisation and progress in health, education and welfare. Half of the world's population lives with an average per capita income of only US$ 270. Per capita is usually reflected in US dollars and is only valid for comparison if exchange rates are equal. Exchange rates reflect international goods and services in a country but not domestic consumption.
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Another limitation of per capita measures is the lack of comparability with the figures themselves. The US budget contains food, clothing and shelter. In many of the less developed nations these items may be largely self provided and therefore not reflected in national income tables. Also in the UK, snow equipment is included, and this is not, obviously, in Africa and parts of Asia. Other limitations are that sales of goods are not well correlated with per capita income and if there is great unevenness in income distribution, per capita figures are less meaningful. Product saturation can be equally troublesome in affecting market potential. A vacuum cleaner in the Netherlands has a 95% household penetration rate, but only 7% in Italy.
Gross National Product is a better indicator of potential than Gross Domestic Product as GDP includes more than "product". World GNP figures reveal the concentration of wealth in the three nations, the USA, Japan and Western Europe. Africa trails far behind (see table 2.3)3.
However, when evaluating markets it is wise to consider individual product areas. For example, Belgium's GNP is better than India's but India's, consumption of steel is 3 times that of Belgium's.
The nature of economy
More than money makes up an economy's economic environment. Natural resources -raw materials now and in the future are important. If synthetic gold or tobacco were developed or, in the case of the latter, became unfashionable, Zimbabwe's economy would be ruined.
Topography may produce two, three or more submarkets in a country. Zambia, for example, has "rural" and "urban" areas with different needs and wants.
Extremes of climate - like the Southern African drought in 1992 can devastate economies and derail any economic development plans and exports. Simply, products are not available to export, because they are being consumed by the domestic economy.
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