by Amarendra Bhushan
The triad economies of NAFTA countries, European Union and Japan account for 80 per cent of world trade. For many firms this constitutes much of what is termed the global market. It is in this triangle that the global consumer with similar lifestyles, needs and desires emanates from. However emerging markets are now becoming more economically powerful and moving up the ranks such that by the year 2020 it is projected that China, Smith Korea and Taiwan will be amongst the top tier of national economies.
The emerging economies
In countries such as China, Brazil, Vietnam and India there is a huge and owing demand for everything from automobiles to cellular phones. Many of the countries which were seen only a few years ago as 'lesserdeveloped countries' (LDCs) now show a healthy economic advancement and fall under the umbrella of emerging markets. Countries such as Indonesia, China, Mexico, Brazil, Chile, Hungary, Poland, Turkey, the Czech Republic and South Africa are all viewed as key growth markets.
In these emerging markets, there is an evolving pattern of government directed conomic reforms, lowering of restrictions on foreign investment and increasing privatization of state owned monopolies. All these herald significant opportunities for the international marketing firm.
Such markets often have what is termed as a 'dual economy'. Usually there tends to be a wealthy urban professional class alongside a poorer rural population. Income distribution tends to be much more skewed between the 'haves' and the 'have nots' than developed countries. From negligible numbers a few years ago, China now has a middle class of 82 million which is forecast to grow to 500 million in the next century. Brazil and Indonesia have middle classes of 15 million each.
High economic growth is often accompanied by high inflation. Countries such as Poland, Brazil, Mexico and China have all recently suffered from high rates of inflation and, in the developing world, it tends to be a more persistent problem than the developed world where most countries have experienced single digit inflation for some years.
Brazil has reeled from an inflation rate of 7000 per cent in 1994 to one of under 11 per cent in 1998. Currently, Indonesia has an inflation rate of 40 per cent and few banks are dealing in the Indonesian rupiah.
Tied to an inflationary environment are generally high levels of external debt. Total external debt of lesser developed countries exceeds US$1 trillion. As countries have to prioritize the servicing of external debt, it invariably leaves little availability of hard currency to buy imported products.
Less developed countries (LDCs)
This group includes underdeveloped countries and developing countries. The main features are a low GDP per capita, a limited amount of manufacturing activity and a very poor and fragmented infrastructure. Typical infrastructure weaknesses are in transport, communications, education and healthcare. In addition, the public sector is often slow-moving and bureaucratic.
It is common to find that LDCs are heavily reliant on one product and often on one trading partner. In many LDCs this product is the main export earner. Amongst twenty-eight LDCs seven receive over half and nine receive between 25 and 50 per cent of their export earnings from their main export commodity. In addition, three-quarters of LDCs depend on their main trading partner for more than one-quarter of their export revenue. The risks posed to the LDC by changing patterns of supply and demand are great. Falling commodity prices can result in large decreases in earnings for the whole country. The resultant economic and political adjustments may affect exporters to that country through possible changes in tariff and non-tariff barriers, through changes in the level of company taxation and through restrictions on the convertibility of currency and the repatriation of profits. In addition, substantial decreases in market sizes' within the country are probable.
The typical pattern for single-product dependence is the reliance on one agricultural crop or on mining. Colombia (coffee), Cuba (sugar), Ghana (cocoa), Mali (cotton), Rwanda (coffee) and Somalia (live animals) are examples of extreme dependence upon agriculture. Gabon (oil), Jamaica (base metal ores), Mauritania (iron ore), Niger (uranium and thorium ores) and Nigeria (oil) are examples of reliance on the extraction of minerals.
A wide range of economic circumstances influence the development of the less developed countries in the world. Some countries are small with few natural resources. For these countries it is difficult to start the process of substantial economic growth. Poor health and education standards need money on a large scale, yet the pay-off in terms of a healthier, better-educated population takes time to achieve. At the same time, there are demands for public expenditure on transport systems, communication systems and water control systems. Without real prospects for rapid economic development, private sources of capital are reluctant to invest in such countries. This i~ particularly the case for long-term infrastructure projects and, as a result, important capital spending projects rely heavily on world aid programmes.
Currency risks
Whilst we have examined economic factors within markets, we also need to bear in mind that in international marketing transactions invariably take place between countries and so the exchange rates and currency movements are an important aspect of the international economic environment.
World currency movements, stimulated by worldwide trading and foreign exchange dealing, is an additional complication in the international environment. On top of all the normal vagaries of markets, customer demands, competitive actions and economic infrastructures, foreign exchange parities are likely to change on a regular if unpredictable bases. In 1998, instability has been seen across the world due to the currency crisis in the Asian markets and the consistent fall of the Japanese yen. Sterling has been exceptionally strong making it particularly difficult for UK exporters to compete internationally.
In Europe, the move towards European Monetary Union will lead to greater stability for firms operating in the market but will have important implications for pricing strategies also.
Meet Amarendra Bhushan, A leading Strategic Human Resource Consultent, MBA from American university of athens, greece, also editing The European journal of NRI finance magazine TRIBUNE). As one of the leading article writer, and corporate hotel professional. Advisor to various organizations and hotels. He is an elected member of south Indian hotel and restaurant federation. Now staying at city of Athens Greece. Amarendra bhushan Dhiraj Athens, Greece PH-0030-6947667507 abdhiraj@mail.gr