PDF Global Economic Environment - University of Northern Iowa
Global Economic Environment
Chapter 2
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1
Economic Integration
1900- only 10 percent integration 2000- 50 percent integration
? European Union ? NAFTA ? ECOWAS
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New realities
Capital movements replaced trade levels Production "uncoupled" from employment World economy dominatecountry economies are secondary End of the capitalism/socialism struggle E-commerce changes all models
? Business and national
3
Economic Indicators
Gross Domestic Product
Total market value of all goods and services produced within a nation's borders
Measure of economic output
Gross Domestic Income
GDP plus income generated from nonresident sources
? Example: money sent to families in home countries
? Profits from selling goods made in another country in the home country
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Economic Systems
Type of economy Type of government Trade and capital flows The commanding heights State provided services funded by taxation Institutional transparency Free markets/entrepreneurial behavior
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Economic System Structures
Private State
Resource Allocation
Market
Market Capitalism
Command
Centrally Planned Capitalism
Market Socialism
Centrally Planned Socialism
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1
Heritage Foundation Economic Freedom
Free
? 20 nations (includes US)
Mostly Free
? 52 nations
Mostly Unfree
? 73 nations
Repressed Unrated
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Stages of Market Development
High-Income Countries GNP > $10,666
Upper-middle-income Countries GNP $3,256 $10,065
86% of the world's
population
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Lower-middle-income Countries GNP $826 $3,255
Low-Income Countries GNP < $825
9
BOP Myths
Poor have NO money Poor are too concerned with satisfying basic needs to "waste" money on non-essential items Goods sold in developing markets are too inexpensive for new entrants to make a profit. Individuals in BOP markets cannot use advanced technology Global companies targeting BOP countries will be criticized for exploiting the poor.
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Kopeyia, Ghana
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FORTUNE AT THE BOTTOM OF THE PYRAMID, Prahalad
True Nature of BOP market
There is Money at the BOP Ease of access to BOP markets BOP Markets are brand-conscious
? Extremely value conscious
BOP Market is connected BOP Customers accept advanced technology readily
11
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2
FORTUNE AT THE BOTTOM OF THE PYRAMID, Prahalad
The Market Development Imperative
Create the capacity to consume
? Affordability
? Single serve packaging ? Creative purchasing plans
? Access ? Intensity of distribution (walking distance)
? Availability
The Need for New Goods and Services Dignity and Choice Trust is a Prerequisite
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FORTUNE AT THE BOTTOM OF THE PYRAMID, Prahalad
Philosophy for Developing Products and Services for BOP market
The basic economics of the BOP market are based on small unit packages, low margin per unit, high volume, and high return on capital employed.
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FORTUNE AT THE BOTTOM OF THE PYRAMID, Prahalad
Twelve Principles of Innovation
Focus on price performance Innovation requires hybrid solutions Solutions must be transportable across countries, cultures, and languages Conserve resources-
eliminate, reduce, recycle
Start with understanding of functionality Process innovations are just as critical
Deskilling work is critical
Education consumers on product usage
Products must work in hostile environments
Research on interfaces given nature of population
Innovations must reach the consumer
Feature and Function evolution in BOP markets can be rapid
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Institutions and Groupings
G8 OECD The Triad
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Balance of Payments (the other BOP)
Record of economic transaction all over the world
Current and capital accounts
Just like a company balance sheet
? Focus is on trade and cash flow expenditures
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International Finance
Foreign exchange
? Devaluation
? (one's currency looses value in comparison to another)
? Revaluation
? Strengthening of currency value in relation to others
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3
PPP- Purchasing Power Parity
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FORTUNE AT THE BOTTOM OF THE PYRAMID, Prahalad
BOP = Bottom of the Pyramid
75 to 100 million people
Tier 1
PPP>$20,000
1,500 to 1,750 million
Tier 2-3
people
PPP $1,500-$20,000
Tier 2 PPP = $1,500
4,000 million people 4,000,000,000
Tier 5 PPP ................
................
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