MONASH

Business
School

MKC 2610
Strategic Retailing in the
Global Market
Online lesson 3
Economic environment
 Economy vs. world economy
• Economy can be seen as an entire network of
producers, distributors, and consumers of goods and
services and activities conducted by these institutions
and individuals in a local, regional, or national
community.
• World economy is the collection of national
economies.

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Economic indicators used to measure markets
• Income
• Population
• Physical quality of life
• Infrastructure
• Geography
• Debt
• Consumption pattern
• Resources
 Income
• Income is measured by annual Gross Domestic Product (GDP),
GDP per capita, Gross National Income (GNI), GNI per capita.
– Affects ability of country to fund future development;
– Widely vary both between& within countries: need to
look at Gini index;
– Fluctuations of exchange rate between currencies can
distort real income and standard of living of people: need
to look at PPP ( purchasing power parity).
 Population
• The world’s population exceeded 7 billion in 2012,
estimated 7.8 billion in March 2020;
• Asia holds over half the world’s population;
• Significance of population size decreases with the
sophistication of the product or service offered
• Negative relationship between stage of economic
development and population growth rates
 Population continued
• Population can be broken down by:
– age distribution
– life expectancies
– household size
– urbanisation

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 Physical quality of life

• Physical Quality of Life Index (PQLI) :

– Life expectancy
– Infant mortality rate
– Adult literacy rate
• Human development index (HDI) ( used by UN):
– Life expectancy
– Education ( literacy rate, gross enrollment ratio
at different levels and net attendance ratio)
– GNI per capita
 Infrastructure
• Facilities and services necessary for the functioning
of the economy and includes:
– Energy supplies
– Transportation
– Communication
– Commercial and financial services
• Critically important for production and marketing
operation in a country.
 Geography
• Natural barriers created by:
– Terrain
– Climate and extremes of nature
• These affect less developed countries to a greater
degree.
• More prosperous nations with greater resources are
more able to manage these barriers
 Debt
• Level on debt impacts on:
– Countries ability to borrow to finance development
– Attractiveness as a market
– Availability of foreign exchange
– Likelihood of payment for imports
• Interest on debt consumes a major percentage
of export receipts in developing nations
• Country debt rating has an impact on terms of
trade and purchasing power
 Consumption patterns

• Income spent on necessities gives an indication of

market development / Engel’s laws
• Product saturation and diffusion
• Inflation impacts buying habits
• Not necessarily uniform across regions

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 Resources
• Varies from country to country with some countries
being almost totally dependent on a single resource
(eg oil)
• Influences source and diversity of export income
Cultural environment
 A caveat: Prof. Geert Hofstede.
 Geert Hofstede (1928): a Dutch
social psychologist who did a
pioneering study of cultures
across modern nations.
 Most popular book: Cultures and
Organizations: Software of the
Mind (1991, newest edition 2010,
co-authored with Gert Jan
Hofstede and Michael Minkov)

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 Culture and Global Consumer Culture

• “Culture is the collective programming of the

mind that distinguishes the members of one
category of people from those of another.”
- Geert Hofstede

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 Culture and Global Consumer Culture
• Culture is both physical and nonphysical

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 Culture and Global Consumer Culture
• Culture is acted out in social institutions

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 Culture and Global Consumer Culture
• Culture has both conscious and unconscious
values, ideas, attitudes, and symbols

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 Culture and Global Consumer Culture
• Cultures may be defined by national borders,
especially when countries are isolated by natural
barriers.

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 Culture and Global Consumer Culture
• Cultures contain subcultures that have little in
common with one another. Example, India.

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 Culture and Global Consumer Culture

• Consumer culture can be defined as being

learned, shared, and composed of interrelated
parts whose meanings provide a set of
orientations for members of society;
• Perceptions and behaviors as group.

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Elements of Culture that relevant to Marketing
• Material life (technologies that are used to
produce, distribute, and consume goods and
services)
• Language (language has two parts: the spoken
and the silent language)
• Blunders of translation are common either direction
• Back translation can help avoid problems
• Social Interactions (social interactions among
people; nuclear family, extended family;
reference groups).
Elements of Culture that relevant to Marketing
• Aesthetics (ideas and perceptions that a culture
upholds in terms of beauty and good taste).
• Music (an art form and cultural activity whose
medium is sound organized in time).
• Religion (belief in supernatural agents).
• Education (major vehicle for channeling culture
from one generation to the next).
• Value System (shape people’s norms and
standards).
Elements of Culture that relevant to Marketing
• Aesthetics (ideas and perceptions that a culture
upholds in terms of beauty and good taste).
• Music (an art form and cultural activity whose
medium is sound organized in time).
• Religion (belief in supernatural agents).
• Education (major vehicle for channeling culture
from one generation to the next).
• Value System (shape people’s norms and
standards).
 Attitudes, Beliefs, and Values
• Attitude–learned tendency to respond in a
consistent way to a given object or entity
• Belief–an organized pattern of knowledge that
an individual holds to be true about the world
• Value–enduring belief or feeling that a specific
mode of conduct is personally or socially
preferable to another mode of conduct

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Religion
• The world’s major
religions include
Buddhism, Christianity,
Hinduism, Islam, and
Judaism and are an
important source of
beliefs, attitudes, and
values.
• Religious tenets,
practices, holidays, and
history impact global
marketing activities.

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Diversity of religion of the world

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Elements of Culture that relevant to Marketing
• Aesthetics (ideas and perceptions that a culture
upholds in terms of beauty and good taste).
• Music (an art form and cultural activity whose
medium is sound organized in time).
• Religion (belief in supernatural agents).
• Education (major vehicle for channeling culture
from one generation to the next).
• Value System (shape people’s norms and
standards).
 Dietary Preferences

• Although some food preferences are deeply

rooted in culture, global dietary preferences are
converging.
Pasta, pizza, sushi, other ethic foods
• Food rooted in traditional culture adapted to
meet the needs of the world.
E.g. Domino Pizza, Panda Express

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 McDonaldization of Culture
Many people resent the “Eating is at the heart of
breaking down of cultural most cultures and for
barriers that occurs when many it is something on
global firms expand into which much time,
new markets. attention and money are
lavished. In attempting to
alter the way people eat,
McDonaldization poses a
profound threat to the
entire cultural complex of
many societies.”
Sociologist George Ritzer
The Slow Food Movement 31 3
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 Another caveat: Edward T. Hall
 May 16, 1914 – July 20,
2009) was an American
anthropologist and cross-
cultural researcher.
 1976 book Beyond Culture
introduced the concept of
high context and low
context culture.

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 High- and Low-Context Cultures
• High Context • Low Context
– Information resides – Messages are
in context explicit and specific
– Emphasis on – Words carry all
information
background, basic
values, societal – Reliance on legal
paperwork
status
– Focus on non-
– Less emphasis on personal
legal paperwork documentation of
– Focus on personal credibility
reputation
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High- and Low-Context Cultures

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 High- and Low-Context Cultures

High context Japanese

IMPLICIT Arabian
Latin American
Spanish
Italian
English (UK)
French

English (US)

Scandinavian
German
Low context
Swiss EXPLICIT

Chapter 4 35
 Hofstede’s Cultural Typology
• Power Distance: the degree of inequality
among people that is viewed as being
acceptable;
• Individualism/Collectivism : the degree to
which people’s image is defined in terms of “me”
versus “we.”
• Masculinity: The importance of “male” values
(assertiveness, status, success, competitive
drive within society, achievement) versus
“female” values (being people-oriented,
solidarity, quality of life).

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 Hofstede’s Cultural Typology
• Uncertainty Avoidance : the way that a culture
deals with the fact that the future can never be
known.
• Long-term Orientation: Oriented primarily on
the present and the future.
• Indulgence: The extent to which people try to
control their desires and impulses, based on the
way they were raised.

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 GLOBE (Global Leadership and
Organizational Behavior Effectiveness)
Research Program
• Project GLOBE is a large-scale ongoing research program
that explores cultural values and their impact on
organizational leadership in 62 countries (Exhibit 4-7).
• Three dimensions (collectivism I, uncertainty avoidance, and
power distance) are the same as Hofstede’s constructs.
• The remaining six dimensions include: collectivism II, gender
egalitarianism, assertiveness, performance orientation,
humane orientation, and future orientation.
 World Value Survey (WVS):
• The WVS is conducted by a network of social
scientists at leading universities worldwide.
• The WVS has been done multiple times and the
population covered is much broader than in
other similar studies.
• The WVS encompasses two broad categories:
traditional versus secular values, and survival
versus self-expression values (Exhibit 4-8).

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Exhibit 4-7: Project GLOBE

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Exhibit 4-8: World Value Survey (WVS)

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 Adapting to Cultures
• Global marketers need to become sensitive to cultural biases
that influence their thinking, behavior, and decision-making.
• Self-reference criterion (SRC): Refers to people’s unconscious
tendency to resort to their own cultural experience and value
systems to interpret a given business situation.
• Out-group homogeneity bias: Refers to people’s tendency to
believe out-group members (e.g., members of host culture) are
more alike and less diverse than members of one’s own group.
• Global business means dealing with consumers, strategic
partners, distributors, and competitors with different cultural
mindsets.

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 Culture and Product
• Many products and services must be tailored to
local values and preferences to make them more
appealing in the host market, while some can also
be banned or restricted due to cultural reasons;
• E.g. McDonald’s, Dunkin’ Donuts

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 Culture and Price
• Customers’ willingness to pay for products will
vary across cultures; what may be perceived as
good value in one culture may have little to no
value in other cultures.
• E.g. 1) In Venezuela, a monthly standard dose of
Lipitor, Pfizer’s cholesterol-lowering drug, costs
between $100 and $125, compared to less than
$50 for a generic drug 2) Numbers: odd number,
6 and 8.

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 Culture and promotion

• Promotion is the most visible element of the

marketing mix. Culture will typically have a major
influence on a firm’s communication strategy.
Local cultural taboos and norms also influence
advertising styles.
• E.g. KFC in China 2016 Monkey year promotion.

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 Culture and place
• Cultural variables may also dictate distribution
strategies.
Eg. Amway and Avon in China, Walmart in
Germany.

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Political environment
 Individual Government Structure

• Structure of Government determined by ideology

or lack of it
– Autocracy/dictatorship
– Communism
– Capitalism
– Socialism:
• List of socialist countries
– Democracy
 Individual Government Structure

• Structure of Government determined by number of

Political Parties
– Single-party-dominant country
– Dual-party system
– Multi-party system
 Individual Government Policies
• Government promote a country’s interests in the
international arena for various reasons and
objectives:
– national security,
– developing new industries and economic
growth, and
– protecting declining industries.
• Monetary and fiscal policies, cost of capital, level
of economic growth, rates of inflation and
international exchange rates are major drivers
 Individual Government Policies
• Incentives and Government Programs
– Home Government incentives for exporting
– Host Government incentives for FDI inflow
• Government Procurement
– Development Projects
– International and national procurement
 Individual Government Policies
• Trade Laws
– Tariff and Nontariff Barriers
• Protection Tariffs
• Revenue Tariffs
– Trade Agreements and Regional
collaborations
– Embargoes and Sanctions
• Export License Requirements
• Investment Regulations
– ownership and financial controls
Tariff and Nontariff Barriers
 Political Risk
• Risk of change in political environment or in
government policy that would adversely affect
a company’s ability to operate effectively and
profitably
• When perceived political risk is high, a country
will have a difficult time attracting foreign direct
investment.

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 Political Risk

• Some examples of political risk include:

– War, Social unrest, fractionalized by language,
ethnic and/or religious groups, Orderly political
transfer, Politically motivated violence, Change
in government/pro-business orientation, Social
conditions (population density and wealth
distribution), Corruption, nepotism, Crime,
Labor costs, Tax discrimination, Exchange
controls, tariff barriers

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 Seizure of Assets

• Expropriation–governmental action to dispossess a

foreign company or investor
– Compensation should be provided in a “prompt,
effective, and adequate manner”
• Confiscation occurs when no compensation is
provided

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 Seizure of Assets
• Nationalization–a government takes control of
some or all of the enterprises in an entire industry
– Acceptable according to international law if:
• satisfies public purpose
• includes compensation

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 Seizure of Assets
• Creeping expropriation–limits economic
activities of foreign firms
• May include:
– Limits on repatriation of profits, dividends, or
royalties
– Technical assistance fees
– Increased local content laws
– Quotas for hiring local nationals
– Price controls
– Discriminatory tariff and nontariff barriers
– Discriminatory laws on patents and trademarks

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Common Law vs. Civil Law
 The Napoleonic Code of
1804 drew on the Roman
legal system and is the
basis for continental
European law today.
Code law is also known
as civil law.
 U.S. law is rooted in
English common law.

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 Common Law vs. Civil Law
• Common Law • Civil Law
 Disputes are decided • Legal system reflects the
by reliance on the structural concepts and
authority of past judicial principles of the Roman
decisions Empire
 Companies are legally
• Companies are formed
incorporated by state
authority by contract between two
or more parties who are
 Code law is used in only
a few areas; the U.S. fully liable for the actions
Uniform Commercial of the company
Code fully adopted by
49 states, Louisiana still
influenced by French
civil law

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 Islamic Law

• Legal system in many Middle Eastern

countries
• Sharia–a comprehensive code governing
Muslim conduct in all areas of life, including
business
– Koran–Holy Book; like code law
– Hadith–like common law
• Based on life, sayings, and practices of
Muhammad
• Identifies forbidden practices “haram”

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 Jurisdiction
• Refers to a court’s authority to rule on particular
types of issues arising outside of a nation’s
borders or to exercise power over individuals or
entities from different countries.
• Employees of foreign companies should
understand the extent to which they are subject to
the jurisdiction of host-country courts.
• Courts have jurisdiction if it can be demonstrated
that the company is doing business in the state in
which the court sits.

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 International Law
• The rules and principles that nation-states
consider binding among themselves
• Pertains to property, trade, immigration and
other areas
• Disputes between nations are issues of public
international law
– World Court or International Court of Justice (ICJ);
– Judicial arm of the United Nations

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.

International Court of Justice

 Judicial arm of the United

Nations founded in 1947
 Settles disputes between
nations
 Offers advice on legal
issues submitted by
various international
ICJ, The Hague, Netherlands
agencies

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 Intellectual Property
• Intellectual property must be registered in each
country where business is conducted
– Patent–gives an inventor exclusive right to
make, use, and sell an invention for a specified
period of time
– Trademark–distinctive mark, motto, device, or
emblem used to distinguish it from competing
products
– Copyright–establishes ownership of a written,
recorded, performed, or filmed creative work

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 Infringement of Intellectual Property

• Counterfeiting–unauthorized copying and

production of a product
• Associative Counterfeit/Imitation–product name
differs slightly from a well-known brand
• Piracy–unauthorized publication or reproduction
of copyrighted work

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 Protecting Intellectual Property
• In the U.S., registration is with the Federal Patent
Office
• In Europe, applicants use the European Patent
Office or register country-by-country
• Soon the Community Patent Convention will
cover 27 countries
• Australian Patent Office (APO) is a division of IP
Australia which is an agency of the Australian
Department of Innovation, Industry, Science and
Research.

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 Protecting Intellectual Property
• World Intellectual Property Organization
– Governed by the Madrid Agreement and the
Madrid Protocol
– Allows trademark owners to seek protection in
as many as 74 countries with a single
application and fee

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 Protecting Intellectual Property
• International Convention for the Protection of
Industrial Property
– Paris Convention
– Honored by 100 countries
– Facilitates multi-country patent registration,
ensures that once a company files, it has a
“right of priority” in other countries for one year
from that date

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 Protecting Intellectual Property

• Patent Cooperation Treaty

– Over 100 countries cooperate with patent applications
• European Patent Convention
– the EU and Switzerland

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 Sanitary and Phytosanitary (SPS)
regulations
• Particularly concern exporters of foodstuffs;
• Can be used as a technical barrier to trade, or a
non-tariff barrier;
• Food safety and genetic technology.

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Corruption Perceptions Index

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 Bribery and Corruption
• Legal risks from bribery are increasing significantly
as a result of international conventions
• Australia – Section 70 of the Criminal Code 1995
Amendment (Bribery of Foreign Public Officials) Act
1999
• 2010 UK Bribery Act 1 July 2011
– includes obligations to prevent bribery
• US Foreign Corrupt Practices Act (FCPA) 1987
• US authorities are active in prosecuting companies
and individuals
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 Elements of Bribery under Australian law
Under Section 70 of the Criminal Code 1995
Amendment (Bribery of Foreign Public Officials) Act 1999

Bribery involves:
• Providing, offering or arranging a benefit
• The benefit is not legitimately due
• With an intention to influence a Foreign Public
Official (FPO) in their official duties
• With the motive to gain or retain business or a
business advantage

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Porter’s five forces analysis
 Next week
• Understanding Customers, Market
Segmentation and Retail Positioning

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