GLOBAL ECONOMY AND

EMERGING INDUSTRIES

ECONOMIC SYSTEMS

Resource Allocation

Market

CommandPrivate

Resource

Ownership

State

Market

capitalism

Market

socialism

Centrally

planned

capitalism

Centrally

planned

socialism

MARKET CAPITALISM

Individuals and firms allocate resources

Production resources are privately owned

Driven by consumers

Government’s role is to promote competition

among firms and ensure consumer protection

Market capitalism is practiced most around the world, most notably in Western

Europe and North America. All market-oriented economies do not function in

an identical manner. The United States is characterized by its competitive

“free-for-all” and decentralized initiative. Japan is sometimes called “Japan,

Inc.” because it has a tightly run, highly regulated economic system that is also

market oriented.

CENTRALLY PLANNED SOCIALISM

Opposite of market capitalism

State holds broad powers to serve the public interest; decides what goods and services are produced and in what quantities

Consumers can spend on what is available

Government owns entire industries and controls distribution

Demand typically exceeds supply

Little reliance on product differentiation, advertising, pricing strategy

Marxism is a vanquished economic system. For decades China, the Former

Soviet Union, and India used this economic system. All of these countries now

have economic reforms that have some degree of market allocation and private

ownership.

CENTRALLY PLANNED

CAPITALISM

Economic system in which command resource

allocation is used extensively in an environment

of private resource ownership

Examples

Sweden

JapanIn Sweden, where two-thirds of all expenditures are controlled by the

government, resource allocation is more “command” oriented than “market”

oriented. Sweden’s “welfare state” has a hybrid system that has elements of

both centrally planned socialism and capitalism.

China’s Guangdong Province operates within a market system. China’s private

sector accounts for 75 percent of total national output.

Cuba is one of the last countries to use command allocation approach.

ECONOMIC FREEDOM Rankings of economic freedom among countries

free, mostly free, mostly unfree, repressed

Variables considered include such things as:

Trade policy

Taxation policy

Capital flows and foreign investment

Banking policy

Wage and price controls

Property rights

Black market

ECONOMIC FREEDOM Free

1. Hong Kong

2. Singapore

3. Ireland

4. Luxembourg

5. Iceland/U.K.

7. Estonia

8. Denmark

9. Australia/New

Zealand/United States

Repressed

150. Cuba

151. Belarus

152. Libya/Venezuela

153. Zimbabwe

154. Burma

155. Iran

156. North Korea

STAGES OF MARKET

DEVELOPMENT

The World Bank has defined four categories

of development using Gross National Income

(GNI) as a base

BEMs, identified 10 years ago, were countries

in Central Europe, Latin America, and Asia

that were to have rapid economic growth

Today, the focus is on BRIC, Brazil, Russia,

India, and China

LOW-INCOME COUNTRIES

GNP per capita of $1,035 or less

Characteristics Limited industrialization

High percentage of population involved in farming

High birth rates

Low literacy rates

Heavy reliance on foreign aid

Political instability and unrest

Concentrated in Sub-Saharan Africa

India is the only BRIC country

LOWER-MIDDLE-INCOME

COUNTRIES

GNI per capita: $1,035 to $6,531

Characteristics

Rapidly expanding consumer markets

Cheap labor

Mature, standardized, labor-intensive industries like

textiles and toys

BRIC nations are China and Brazil

UPPER-MIDDLE-INCOME

COUNTRIES

GNP per capita: $6532 to $12,616

Characteristics Rapidly industrializing, less agricultural employment

Increasing urbanization

Rising wages

High literacy rates and advanced education

Lower wage costs than advanced countries

Also called newly industrializing economies (NIEs)

Examples: Malaysia, Chile, Venezuela, Hungary, Ecuador

MARKETING OPPORTUNITIES IN

LDCS

Characterized by a shortage of goods and

services

Long-term opportunities must be nurtured in

these countries

Look beyond per capita GNP

Consider the LDCs collectively rather than

individually

Consider first mover advantage

Set realistic deadlines

MISTAKEN ASSUMPTIONS ABOUT

LDCS

1. The poor have no money.

2. The poor will not “waste” money on non-essential goods.

3. Entering developing markets is fruitless because goods there are too cheap to make a profit.

4. People in BOP (bottom of the pyramid) countries cannot use technology.

5. Global companies doing business in BOP countries will be seen as exploiting the poor.

HIGH-INCOME COUNTRIES

GNI per capita: $12,616 or more

Also know as advanced, developed, industrialized,

or postindustrial countries

Characteristics

Sustained economic growth through disciplined

innovation

Service sector is more than 50% of GNI

HIGH-INCOME COUNTRIES Characteristics, continued

Importance of information processing and exchange

Ascendancy of knowledge over capital, intellectual over machine technology, scientists and professionals over engineers and semiskilled workers

Future oriented

Importance of interpersonal relationships

OHMAE’S “INVISIBLE

CONTINENT”• The global economy is now either capitalist or

highly dependent on capitalist economic processes.

• It is a new brand of capitalism in which productivity and competitiveness are a function of knowledge generation and information processing.

• Firms and territories are organised in networks of production, management and distribution where their core economic activities are global and where they have the capacity to work as a unit in real time, or chosen time, on a planetary scale .

• Firms operate in ultra-dynamic world of uncertainty, often in economic cyberspace – the ‘new continent’.

THE FOUR DIMENSIONS The ‘real’ economy; economic actors work, consume,

invest within recognised boundaries. Aware of forces

shaping their lives which they can, to some extent,

influence.

The ‘borderless’ world; business and finance develop

invisible inter-connections that transcend traditional

boundaries. Decisions are more remote and less well

understood by economic actors.

‘economic cyberspace’; a new ‘continent’ where global

transactions are conducted at tremendous speed and

scale. Those affected often play no part in the process and

may not even have realised what was happening.

The world of ‘high multiples’; the explosion of high risk/high

yield investments, generating multiples (share

value/earnings) far higher than previously experienced and

THE RESULT

Runaway capital, the growth of huge corporations

more powerful than many governments; rampant

speculation; employment insecurity and growing

inequalities all point to a turbulent global economic

system.

The failure of markets to attain natural equilibrium in

the modern global business environment is therefore

scarcely surprising, given the complexities and

unexplored dimensions of the new 'invisible continent'

and its unpredictability.

WHY DOES IT MATTER?

Policy-makers in business and government are

unprepared for the catastrophes of the invisible

continent; for example, millions of dollars might

gush in or out of a local economy in nano-seconds,

with the impact of a typhoon or hurricane on the

population.

(Ohmae, 1999, The Invisible Continent)

UNSTABLE WORLD? Massive, volatile flows of capital

The monetary sector of the economy(exchange rates & interest rates) adjustsmuch faster than the real sector (employmentand output).

Exchange rates often “over-shoot”, creatingproblems for real sector

Governments no longer able to stabiliseeconomy on their own & co-ordination can beproblematic.

Desperate need for economic choreography –but how?