Chapter 9

EMERGING MARKETS

What Should You Learn?

The political and economic changes affecting global marketing The connection between the economic level of a country and the marketing task Marketings contribution to the growth and development of a countrys economy The growth of developing markets and their importance to regional trade The political and economic factors that affect stability of regional market groups The NIC growth factors and their role in economic development

Global Perspective Wal-Mart, Tide, and Three-Snake Wine

China and emerging markets will account for 75% of the worlds total growth next decade and beyond New patterns of consumer behavior are emerging
Countries prosper

People are exposed to new ideas and behavior patterns via global communication networks
Old stereotypes, traditions, and habits are cast aside or tempered A pattern of economic growth and global trade will extend well into the 21st century

Three multinational market regions

Europe, Asia, and America

Marketing and Economic Development

The stage of economic growth
Affects the attitudes toward foreign business activity The demand for goods The distribution systems found within a country The entire marketing process

Static economy Dynamic economy Economic development

Means an increase in GDP and implies a widespread distribution of increased income Economic development presents two challenges
Study of economic development is necessary to gain empathy regarding the economic climate within developing countries Study of state of economic development with respect to market potential, including the present economic level and the economys growth potential

Stages of Economic Development

The Rostow's Stages of Growth model is one of the major historical models of economic growth. It was developed by W. W. Rostow in 1960. The model postulates that economic growth occurs in five basic stages, of varying length: Traditional society Preconditions for take-off Take-off Drive to maturity Age of High mass consumption

Stages of Economic Development

The United Nations classifies a countrys stage of economic development on the basis of its level of industrialization, the three categories are:
More developed countries (MDCs); industrialized countries with high per capita incomes Less developed countries (LDCs); industrially developing countries just entering world trade Least developed countries (LLDCs); industrially underdeveloped, agrarian, subsistence societies with rural populations with extremely low per capita income levels, and little world trade involvement.

Exhibit 9.1: Standards of Living in the 8 Most Populous American Countries

Newly Industrialized Countries (NICs)

The UN classification has been criticized because it no longer seems relevant in the rapidly industrializing world. Many countries that are classified as LDCs are industrializing at a very rapid rate. Newly Industrialized Countries (NICs): Countries that are experiencing rapid economic expansion and industrialization and do not exactly fi t as LDCs or MDCs These countries have shown rapid industrialization of targeted industries They have per capita incomes that exceed other developing countries They have moved away from restrictive trade practices and instituted significant free market reforms They attract both trade and foreign direct investment

NIC Growth Factors

Newly Industrialized Countries (NICs)
Countries that are experiencing rapid economic expansion and industrialization
Do not exactly fit as LDCs or MDCs Have moved away from restrictive trade practices

Instituted significant free market reforms

Economic Growth Factors

Political stability in policies affecting their development

Economic and legal reforms

Entrepreneurship Planning Outward orientation

Factors of production
Industries targeted for growth Incentives to force a high domestic rate of savings and to direct capital to update the infrastructure, transportation, housing, education, and training

Privatization of state-owned enterprises (SOEs) that placed a drain on national budgets

Information Technology, the Internet, and Economic Development

A countrys investment in information technology (IT) is an important key to economic growth. Innovative electronic technologies can be the key to a sustainable future for developed and developing nations alike. Because the Internet cuts transaction costs, it has enabled small firms in Asia or Latin America to work together to develop a global reach. The Internet accelerates the process of economic growth by speeding up the diffusion of new technologies to emerging economies. Mobile phones and other wireless technologies greatly reduce the need to lay a costly telecom infrastructure.

Objectives of Developing Countries

Industrialization is the fundamental objective of most developing countries. Economic growth is seen as the achievement of social as well as economic goals
Better education

Better and more effective government

Elimination of many social inequities Improvements in moral and ethical responsibilities

Privatization is currently a major economic phenomenon in industrialized as well as in developing countries

Infrastructure and Development

Infrastructure represents those types of capital goods that serve the activities of many industries. Included in a countrys infrastructure are paved roads, railroads, seaports, communication networks, financial networks, and energy supplies and distribution Infrastructure is a crucial component of the uncontrollable elements facing marketers The less developed a country is the less adequate the infrastructure is for conducting business

Countries begin to lose economic development ground when their infrastructure cannot support an expanding population and economy

Infrastructure of Selected Countries

Marketings Contribution
Unfortunately, marketing (or distribution) is not always considered meaningful to those responsible for planning Economic planners frequently are more production oriented than marketing oriented Marketing is an economys arbitrator between productive capacity and consumer demand It can create a balance between higher production and higher consumption

Marketing in a Developing Country

Marketing efforts
Must be keyed to each situation
Custom tailored to each set of circumstances
Must provide for optimum utility

Marketer must evaluate existing level of market development and receptiveness

The more developed an economy, the greater the variety of marketing functions demanded, and the more sophisticated and specialized the institutions become to perform marketing functions

Demand in a developing country

Three distinct kinds of markets in each country
Traditional rural/agricultural sector Modern urban/high-income sector Transitional sector usually represented by low-income urban slums

Level of Market Development

The level of market development roughly parallels the stages of economic development The more developed an economy, the more sophisticated and specialized the institutions become to perform marketing functions As countries develop, the distribution channel systems develop Marketing structures of many developing countries are simultaneously at many stages

Evolution of the Marketing Process

Demand in Developing Countries

Estimating market potential in less-developed countries involves challenges Most of the difficulty is from the coexistence of three distinct kinds markets in each country: (1) the traditional rural/agricultural sector (2) the modern urban/high-income sector and (3) the often very large transitional sector usually represented by low-income urban slums Bottom-of-the-pyramid markets
Bottom-of-the-pyramid markets (BOPMs) consisting of the 4 billion people with incomes of less than $1,200 across the globe

Most often concentrated in the LDCs and LLDCs

Consumption Patterns in Selected Countries

Dynamic Transformation of BOPM Clusters

Developing Countries and Emerging Markets

The U.S. Department of Commerce estimates
Over 75% of the expected growth in world trade over the next two decades will come from the more than 130 developing and newly industrialized countries

Big emerging markets share important traits

Are all physically large Have a significant populations Represent considerable markets for a wide range of products Have strong rates of growth or the potential for significant growth Are of major political importance within their regions Are regional economic drivers Will engender further expansions in neighboring markets as the grow

Because many lack modern infrastructure, much of the expected growth will be in industrial sectors

Big Emerging Markets

Latin America
Most countries have moved from military dictatorships to democratically elected governments The trend toward privatization of state-owned enterprises followed a period in which governments dominated economic life for most of the 20th century Today many Latin American countries are at roughly the same stage of liberalization that launched the dynamic growth in Asia during the 1980s and 1990s In a positive response to these reforms, investors have invested billions of dollars

Eastern Europe and the Baltic States

Eastern Europe
Privatizing state-owned enterprises
Establishing free market pricing systems, Relaxing import controls Wrestling with inflation

The Baltic States

Estonia, Latvia, and Lithuania
All three countries started off with roughly the same legacy of inefficient industry and Soviet-style command economics All three Baltic countries are EU and NATO since 2004

2000

2001 10,93 5 (42.6 %)

2002 12,04 4 (46.0 %)

2003 13,28 4 (49.6 %)

2004 14,88 2 (53.3 %)

2005 16,61 8 (57.1 %)

2006 18,81 9 (59.3 %)

2007 20,58 4 (61.8 %)

2008 20,25 9 (59.4 %)

2009 18,38 6 (56.3 %)

2010 18,26 6 (56.4 %)

2011

2012

Estoni a

9,909 (40.0 %)

18,79 0

19,81 1

Latvia

7,688 (31.1 %)

8,542 (33.3 %)

9,315 (35.6 %)

10,26 2 (38.3 %)

11,50 6 (41.2 %)

13,18 1 (45.3 %)

15,35 0 (48.3 %)

17,43 7 (52.4 %)

17,07 1 (50.1 %)

15,21 8 (46.6 %)

15,02 6 (46.4 %)

15,36 7

16,10 2

Lithua nia

8,437 (34.1 %)

9,257 (36.1 %)

10,08 8 (38.5 %)

11,41 0 (42.6 %)

12,62 2 (45.2 %)

14,21 8 (48.8 %)

15,92 2 (50.1 %)

17,90 7 (53.8 %)

18,94 6 (55.6 %)

17,31 5 (53.0 %)

16,97 3 (52.4 %)

17,66 9

19,00 8

Data from International Monetary Fund

Asia
Asian-Pacific Rim
Four Tigers (Hong Kong, South Korea, Singapore, Taiwan)
First countries in Asia to move from a status of developing countries to newly industrialized countries.

China
Two major events that occurred in 2000 are having a profound effect on Chinas economy
Admission to the WTO U.S. granting China normal trade relations on a permanent basis

Current NICs
GDP (PPP) Region Country (Billions of USD, 2011World Bank)
[7]

GDP per capita (PPP) (international dollars, 2012IMF)[8]

Income inequality (GINI) 200809

[9][10]

Human Development Index (HDI, 2013)

[11]

GDP (real) growth rateas of 2010 Sources

Africa

South Africa

555,340

11,302

63.1

0.629 (medium) 2.78

[3][4][5]

North America

Mexico

1,659,016

15,300

48.3

0.775 (high)

5.52

[2][3][4][5]

South America

Brazil

2,309,138

12,038

54.7

0.730 (high)

7.49

[2][3][4][5]

China

11,316,224

9,146

45.3

0.699 (medium) 10.3

[3][4][5]

India

4,469,763

3,851

32.5

0.554 (medium) 11.1

[3][4][5]

Asia

Malaysia

447,595

16,942

46.2

0.769 (high)

7.16

[3][4][5]

Philippines

424,355

4,264

43

0.654 (medium) 7.6

[2][3][4][5]

Thailand

622,914

10,023

40

0.690 (medium) 7.8

[2][3][4][5]

Europe

Turkey

[a]

1,288.638

15,029

39

0.722 (high)

9.0

[3][4][5]

Freesest economy ranking 1. Honkong 2. Singapore 3. Australia 4. New Zealand 5. Switzerland

Asia
China (continued)
China has two important steps to take if the road to economic growth is to be smooth
Improving human rights Reforming the legal system

The American embassy in China has seen a big jump in complaints from disgruntled U.S. companies Two Chinas
One a maddening bureaucratic, bottomless money pit
The other an enormous emerging market

Asia
Hong Kong
Hong Kong reverted to China in 1997 when it became a special administrative region (SAR) of the Peoples Republic of China
The Hong Kong government negotiates bilateral agreements and makes major economic decisions on its own

The keys to Hong Kongs economic success

Free market philosophy Entrepreneurial drive Absence of trade barriers Well-established rule of law Low and predictable taxes Transparent regulations Complete freedom of capital movement

Asia
Taiwan
Mainland-Taiwan economic ties are approaching a crossroads as both countries enter the World Trade Organization Three direct links must be faced because each country has joined the WTO and the rules insist that members should communicate over trade disputes and other issues

India
Five-point agenda
Improving the investment climate Developing a comprehensive WTO strategy

Reforming agriculture, food processing and small scale industry

Eliminating red-tape Instituting better corporate government

Newest Emerging Markets

The U.S. decision to lift the embargo against Vietnam
If Vietnam follows the same pattern of development as other Southeast Asian countries, it could become another Asian Tiger

The United Nations lifting of the embargo against South Africa

South Africa has an industrial base that will help propel it into rapid economic growth The South African market also has a developed infrastructure

Vietnam and South Africas future development

Will depend on government action and external investment by other governments and multinational firms

Strategic Implications for Marketing

As a country develops
Incomes change Population concentrations shift Expectations for a better life adjust to higher standards New infrastructures evolve Social capital investments made

When incomes rise, new demand is generated at all income levels for everything from soap to cars

-END-

Garcia, John Robert Joble, Noa Louisa Mariano, Clarita Verano, Paulo