International Marketing

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International Marketing

• Tim Beal
• Lecture 2
• 18 July 2007

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Today

• Housekeeping
• Globalisation and the global economy
• Asian Titans
• DVD Paul Vaughan NZ Trade Commissioner to
  India
• If time
• Charlotte Clements using library online
  databases

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Housekeeping

• Tutorials start next week
• Will post final list later in the week
• Blackboard any problems?
• Course homepage - URL case sensitive
• http//www.vuw.ac.nz/caplabtb/m302w07/

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Textbook Fletcher Brown

• Should be sufficient copies in Victoria Book
  Centre
• Any problems?
• What we cover in lectures complements Fletcher
  and Brown, does not replace textbook

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Class Representative

• Candidates see me during break

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Globalisation and the global economy

• Why the world trades comparative advantage
• Limits of comparative advantage
• Globalisation to global markets

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Globalisation

• Movement around much (but not all) of the globe
  of

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Goods
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Services
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People
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People as

• Workers
• Refugees

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Migrants
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Students
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And especially as tourists
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in Asia
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In Europe
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And in NZ.
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The world changes before our eyes

• With, for instance..

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The mushrooming of cities
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Global economy and IM

• Marketing an economic activity
• Takes place within specific economic environment
• Controllable and uncontrollable variables
• environment uncontrollable variables
• larger the organisation more effect it has on
  environment
• Interaction with political, socials and
  technological factors

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IM diagram
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Why the world trades

• 16-18th Mercantilists
• Controlled trade in order to make nation strong
• Focus on gold and silver (specie)
• Adam Smith and successors argued for free trade
• David Ricardo and comparative advantage

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David Ricardo 1772-1823
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Comparative advantage

• Not the same as absolute advantage/ competitive
  advantage
• Advocates specialisation even if no competitive
  advantage
• Ricardos example - cloth and wine
• 2 country 2 product model
• Labour only cost of production
• Cost of transport ignored

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Labour required per unit
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Why trade?

• Both cloth AND wine are cheaper in Portugal
• Yet trade is advantageous to both - why?
• Bale of cloth worth 3 barrels of wine in Portugal
  rather than 2 in Britain
• British cloth seller gets more wine exporting to
  Portugal than selling at home
• Despite British cloth being more expensive

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Portugals advantage

• British prices 2 wine 1 cloth
• Portugal 3 wine 1 cloth
• Portuguese wine seller gets
• 1/3 bale of cloth in Portugal
• 1/2 bale of cloth in Britain

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Both sides gain

• Specialise
• Portuguese specialise in wine
• British specialise in cloth
• by trading they get more of the other commodity
  than they would have if they had produced it
  themselves
• How much more?

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Prices change

• Trade alters prices
• British price of wine will drop
• gtgt somewhere between original British price
• 2 barrels of wine per bale of cloth
• and original Portuguese price
• 3 barrels of wine per bale of cloth
• International pricegtgtgt(say) 2.5

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Gains from trade

• Comparative advantage does not tell us what
  international price will be
• at 2.8 British gain more, at 2.2 Portuguese gain
  more
• Both gain, but gains of trade not necessary equal
• Other problems with theory

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Limitations of comparative advantage

• Transport and distribution ignored
• Assumes that factors of production are mobile
• Often are not eg European agriculture

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CAP

• European Unions Common Agricultural Policy
• NZ produces dairy products 1/4 price of EU
• no over-wintering costs
• NZ, because small market lacks economies of scale
• Manufacturing more expensive

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Reasons for having range of production

• Countries may resist specialisation for many
  reasons
• Social eg rural depopulation, unemployment
• Security - food, military equipment, etc.
• Technological - need to participate in new
  technologies

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Environmental concerns

• Food miles
• Environmental cost of distance between producer
  and consumer
• Articles on links page under environment

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Terms of Trade

• Relationship of export to import prices
• Raw materials versus (high tech) manufactures
• fluctuate
• Deteriorate over time
• 1962 1 BMW 50 litres of milk
• 2006 1 BMW 100 litres of milk
• Milk doesnt change, cars do

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Marketing to rescue

• commodity prices fluctuate and tend to fall over
  time
• IM aims to change commodities into branded
  products
• Important for NZ to seek ways of adding value to
  our primary commodities
• Zespri, Cervana are examples

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Globalisation, then and now

• Aspects of globalisation not new
• Silk Road linking China and Europe
• 19th century onwards great growth in
  international trade
• post World War II liberalisation process
• Chinas opening up
• Reading Asian Titans
• changes in transportation, information and
  communications technology

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Combination

• Modern globalisation product of combination of
  economic, political and technological factors
• eg trade grows because
• transport cheaper
• communications easier and cheaper
• lowering of political barriers such as tariffs

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Result

• Move from separate local and national economies
  to borderless economy
• e-commerce most advanced example
• distance often irrelevant

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Globalisationgtgtglobal markets

• Great growth in world trade and income
• liberalisation of global economy
• more next week
• falling transport and communication costs
• mobility of capital, technology, products
• relative immobility of labour
• Creation of dynamic and volatile global markets

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dynamic and volatile global markets

• Demand Societies becoming
• richer and less self-sufficient
• changing society and lifestyles
• Supply
• new products eg TVs, computers
• old products now available globally eg tourism,
  out of season fruit
• IM constantly combining continuity with change

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Asian Titans

• Read handout
• Here look quickly at couple of graphs

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Long-term changes in the share of global GDP
China, India and the West
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Asian Titans

• China, and to lesser extent India, will be
  increasingly major force in international markets
  in your lifetime
• Destination markets for exports
• Competitors in global economy
• Goods
• Services
• Brands
• One famous Chinese brand

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DVD Paul Vaughan

• Transcript on course page

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Charlotte Clements
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Today

• Charlotte Clements
• Globalisation and the global economy
• DVD Paul Vaughan
• Asian Titans

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Next week

• The political framework of globalisation
• Changing social fabric
• DVD Sanjay Menon Indian wine importer