Understanding the Global Environment

Understanding the Global Environment

Before deciding whether or not to sell abroad, a company must thoroughly under­ stand the international marketing environment. That environment has changed a

190 • Chapter 5 The Global Marketplace

Many companies have made the world their market: opening the megaxtore in Milan (top left) and Virgin megagtares m London, Los

Angeles, Vienna and Tokyo.

great deal in the last two decades, creating both new opportunities and new prob­ lems. The world economy has globalized. First, world trade and investment have

grown rapidly, with many attractive markets opening up in western and eastern Europe, Russia, China, the Pacific Rim and elsewhere. Official sources suggest that world trade in goods grew by 8 per cent in volume terms and FDI rose some 40 per

cent over 1996 alone. In tact, during the 1990s, international trade has grown faster titan world output. 4 There has been a growth of global brands in motor vehicles, food, clothing, electronics and many other categories. The number of global companies has grown dramatically. While the United States' dominant position in world trade has declined, other countries, such as Japan and Germany, have increased their

tariff economic power in world markets (see Marketing Highlight 5.1). The interna­

A tax levied by a tional financial system has become more complex and fragile. In some country government against

markets, foreign companies face increasing trade barriers, erected to protect certain imported domestic markets against outside competition. There has also been increasing products. Tariff* are

designed to raise concern among members outside the European Union that 'Fortress Europe' revenue or to protect

presents greater harriers to penetrating the EU markets. Japanese car plants, for domes tic firms.

example, have been attracted to the United Kingdom by the thought that they can by­pass the EU's restrictions on imports of Japanese cars.

quota

A limit on the amount of goods that an importing

• The international Trade System

country will accept in The company looking abroad must develop an understanding of the international certain product

trade system. When selling to another country, the firm faces various trade categories; it is designed

restrictions. The most common is the tariff, which is a tax levied by a foreign to conserve on foreign

government against certain imported products. The tariff may be designed either exchange and to protect

local industry and to raise revenue or to protect domestic firms: for example, those producing motor employment.

vehicles in Malaysia and whisky and rice in Japan, The exporter also may face a quota, which sets limits on the amount of goods the importing country will accept

Anaiyiiis of Intiirriational Market Opportunity * 191

in certain product categories. The purpose of the quota is to conserve foreign exchange and to protect local industry and employment. An embargo is the

embargo

strongest form of quota, which totally bans some kinds of import.

A ban on the import of a Firms may face exchange controls that limit the amount of foreign exchange

certain product. and the exchange rate against other currencies. The company may also face non­ tariff trade barriers, such as biases against company bids or restrictive product

exchange controls standards that favour or go against product features. 5 Government limits on

At the same time, certain forces help trade between nations. Examples are the amount of its country 'K foreig n

the General Agreement on Tariffs and Trade (replaced by the World Trade exchange smith other Organization in 1993) and various regional free trade agreements.

countries and on its exchange rate against

other currencies.

• The General Agreement, on Tariffs and Trade/ *J •'•/ Word Trade Organization

non­tariff trade barriers Non­mrmetary barriers

The General Agreement on Tariffs and Trade (GATT) is an international treaty to foreign products, such designed to promote world trade by reducing tariffs and other international trade

UK biases against a barriers. There have been eight rounds of GATT talks since its inception in 1948,

foreign company's bidn in which member nations reassess trade barriers and set new rules for interna­

or product standards tional trade. The first seven rounds of negotiations reduced average worldwide

that go against«foreign tariffs on manufactured goods from 45 per cent to around 4 per cent in industrial

company's product countries.

features. The most recent GATT round, the Uruguay round, ended in 1993. Although

the benefits of the Uruguay round will not be felt for many years, the new accord should promote robust long­term global trade growth. It reduces the world's remaining manufactured goods tariffs by 30 per cent, which could boost global

merchandise trade by up to 10 per cent, or $270 billion in current US dollars, by the year 2002.

The Uruguay round did much more than cut tariffs on goods. It heralded a big institutional change, creating the World Trade Organization (WTO) as a successor to GATT. WTO now boasts 132 members. It also introduced three big changes to

world trade rules. First, it began to open up the most heavily protected industries: agriculture and textiles. Second, it vastly extended the scope of international

trade rules to cover services as well as goods. New issues, such as the use of spurious technical barriers and health regulations to keep out imports and the

protection of foreigners' 'intellectual property', such as patents and copyright, were addressed for the first time.

The third big change brought by the Uruguay round was the creation of a new system for settling disputes. In the past, countries could (and sometimes did) break (5ATT rules with impunity. Under the new system, decisions can be blocked only by a consensus of WTO members. Once found guilty of breaking the rules, and sifter appeal, countries are supposed to mend their ways. Under the WTO

international trade issues continue to be addressed. As the new WTO builds up its credibility, more and more countries, including China, arc wanting to join/'