CHAPTER 2
An Overview of the International Marketing Environment
LEARNING OBJECTIVES
After studying this chapter students should be able to:
• Provide an overview of the world economic environment and examine different
perspectives on economic development.
• Address differences between countries of different levels of economic
development and discuss the importance of emerging markets.
CHAPTER SPOTLIGHTS
• The Economic Environment of International Marketing: Interdependence is
becoming the leading principle of globalization.
• Perspectives on Economic Development: The primary Western model of economic
development is the Rostow model, which describes economic development as a
function of productivity, economic exchange, technological improvements, and
income. Alternative models offer different perspectives on economic development
– for example, Marxist-Leninism depicts development as a class struggle
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• International Legal Environment: International marketing is affected by
international laws imposed by international and supranational bodies; host-country
CHAPTER OVERVIEW
This chapter provides an overview of the world economic environment and addresses
different views on economic development. The chapter introduces two models of
economic development and addresses differences between countries of different levels of
2-1 Economic Environment of International Marketing.
2-1a The World Economy
Globalization has led to a unified international economy and leading companies
2-1b The Economic Development Disparity: There is an economic development
2-2 Perspectives on Economic Development
Two leading models of economic development are introduced here: a Western
2-2a The Rostow Modernization Model
According to this Western development model, each stage of economic
development is a function of productivity, economic exchange, technological
improvements, and income. Modernization stages are:
1) Traditional society: Economy dominated by agriculture, minimal
2-2b Alternative Models of Economic Development
Alternative models of economic development are embraced by developing nations
seeking to avoid domination by industrialized countries. The Marxist-Leninist
Model addresses economic advancement is a function of the control of means of
production, of production outcomes, of resource allocation, and the development
of a non-materialistic mindset. The stages of development are the following:
1) Primitive society, characterized by the joint tribal ownership of
primitive means of production centered on agricultural tasks.
2) Slavery-based society, characterized by dominant tribes claiming
2-3 Levels of Economic Development:
There are three categories of countries based on the categorization used by the
World Bank:
1) High-income countries—highly industrialized countries with well-developed
industrial and service sectors, with a GNI per capita of US$10,726 or more.
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2-3a The Importance of Emerging Markets
Emerging markets are attractive to multinational firms because of their high rate
2-4 Political Environment of International Marketing
At the basis of international law lies the concept of sovereignty – the country’s
2-4a Political Risk
A company can evaluate the political risk of a potential market using
2-4b Nationalism
The expression of nationalist sentiment in the country where the company is
2-4c Political Risks and Risk Management in International Marketing:
There are a number of risks that a company can experience in an international
market:
• Risks related to government trade policies: the host country can erect
trade barriers, imposing tariffs and non-tariff restrictions on international
2-5 International Legal Environment
2-5a Legal Systems:
1) Common Law: based on prior court rulings (legal precedent); used by
many of the former Great Britain colonies
2-5b Jurisdiction in international legal disputes is important but can be difficult to
establish and thus should be specified in the contract. Procedures other than
2-5c Intellectual Property Rights Protection
The violation of intellectual property is the most significant threat to the
competitiveness of the company. Protection can take several forms:
• Protection of the patent, or the right of the inventor or of the firm
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2-5d Home-Country Legislation Affecting Multinational Firms Operating Overseas
U.S. laws affect companies operating overseas. Two types of laws in particular
affect operations and company competitiveness:
• Antitrust Laws: laws designed to prevent domestic anti-trust competitive
market, such as the U.S. Foreign Corrupt Practices Act.
2-6 The Natural Environment of International Marketing
The natural environment of international marketing addresses the relationship
2-6a Geology and the Shortage of Natural Resources
A country’s access to natural resources determines whether the country can be a
2-6b Topography and Access to Markets
Topography determines access to the market and affects distribution decisions.
2-6c Hydrology and Economic Development
2-6d Climate
2-6e Population
2-6f Environmental Quality
Concerns about the effects of population growth and industry on the natural
2-7 The Technological Environment
KEY TERMS:
Antitrust Laws: Laws designed to prevent domestic anticompetitive activities, such as
the creation of monopolies and cartels.
Bourgeoisie: A dominant social class, which, according to Marxist-Leninst theory,
establishes lucrative means of production and achieves high productivity at the expense
of exploited workers.
Capitalism: A stage of economic and political development, which, according to
Marxist-Leninist theory, is characterized, in its early stages, by an emerging bourgeoisie,
the shift of production from the agrarian sector to the industrial sector, and, in its later
stages, by imperialism, where capital loses its national identity by crossing borders and
establishing monopolies.
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Creeping Expropriation: A situation characterized by bureaucratic red tape and
corruption, an unreliable judicial system, and shifting regulations, where foreign
government actions discourage foreign investment, especially investment in nonessential
sectors.
Emerging Markets (also middle-income countries): Countries that are both developing
rapidly and have great economic potential.
Expropriation: The foreign government seizure of company assets with partial
reimbursement, usually not at market value.
Home-Country Laws: Laws of the company’s home country. Home-country laws
follow the company all over the world.
Host-Country Laws: Local laws of the different countries where the company operates.
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Islamic Law: A system of law based on the interpretation of the Koran, Islam’s holy
book, and on interpretations of the practices and sayings of the prophet Muhammad
Marxist-Leninist Development Model: A development model attributed to Karl Marx
and Vladimir Lenin that maps the development of society from an agrarian, traditional
Mediation: Nonbinding procedure for conflict resolution involving an independent third
party.
Monopolistic Capitalism: A stage of economic and political development, in which,
Nationalism: An expression of fierce nationalist sentiment in a country where a
company is operating, which poses an implicit threat to the company and its operations.
Political Risk: The risk associated with actions of local, regional, and/or parastatal
governing bodies affecting the international company, and with the overall economic and
political stability within a particular country.
Primitive Society: The first stage of economic and political development, characterized,
according to Marxist-Leninist theory, by the joint tribal ownership of the means of
primitive means of production centered on agricultural tasks.
Slavery-Based Society: A stage of economic and political development, which,
according to Marxist-Leninist theory, emerges as a result of tribes’ dominance over other
Trade Secrets: Intellectual property such as know-how, formulas, special blends, and
other elements that are not registered, and are thus not protected by law.
Trademark: A brand name, mark, symbol, motto, or slogan that identifies a particular
manufacturer’s brand and distinguishes it from the competitors’ brands in the same
product category.
Trade-Related Aspects of Intellectual Property Rights: An international agreement
DISCUSSION QUESTIONS:
1. Compare the Rostow and the Marxist-Leninist models of economic
development. How do you explain the two models in light of developments
over the past decade in Central and Eastern Europe? Why do developing
countries continue to embrace the Marxist-Leninist model of economic
development?
Both models agree on the first stage in any economic development–that of the
traditional (Rostow) or the primitive (Marxist-Leninist) society stage. During this
stage, the economic structure is dominated by agriculture, and there are no class
distinctions. However, after this initial stage, the theories begin to differ.
Rostow sees the later developments as a sequence of economic advances, driven
by increased productivity, increased economic exchange, technological
2. Describe indicators of political risk. Examine current events and identify
some of the political risks that multinational companies face in the world
today.
Political risk can be defined as the risk associated with actions of local or regional
governing bodies affecting the international company or the overall economic and
political stability within a country. There are several country risk elements that a firm
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3. Discuss two home-country laws that affect U.S. businesses operating
internationally.
Antitrust laws, designed to prevent anticompetitive activities such as the creation
of monopolies, are imposed on U.S. firms operating abroad.
Corruption laws, designed to stop multinational corporations from using unethical
4. What are some examples of violations of international property rights? Give
some examples of counterfeiting.
Intellectual property rights are laws that protect the rights of the inventor or the
firm employing the inventor to use and sell an invention for a specified period of
REVIEW QUESTIONS:
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True/False
1. True
Multiple Choice
1. D
CASE 2-1
Munich Re—Terrorism-Related Risk Management and Ecological Issues
1. Address the political risk signals that bring about terrorist actions. How can
companies reduce their likelihood of becoming victims of terrorism?
Among political risk signals that brought about terrorist actions, including the September
11, 2001, events, are, in particular, the anti-American rhetoric in developing countries,
2. Address the changes to each element of the marketing mix at Munich Re as a
result of the September 11 terrorist attacks.
Product:
– in short-run, terror insurance was eliminated from the company’s portfolio
3. How is Munich Re an innovator when it comes to the coverage of environmental
risk?
Munich Re is taking a proactive stance when it comes to the coverage of environmental
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