Chapter 9

Economic Development and the

Americas

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 Learning Objectives 1 of 2
9-1 The importance of time zones for trade
relationships and marketing operations
9-2 The political and economic changes affecting global
marketing
9-3 The connection between the economic level of a
country and the marketing task
9-4 The variety of stages of economic development
among American nations

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 Learning Objectives 2 of 2
9-5 Growth factors and their role in economic
development
9-6 Marketing’s contribution to the growth and
development of a country’s economy
9-7 The foundational market metrics of American
nations
9-8 The growing importance of trading associations
among American nations

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 International Time Zones
Important in Business
• International marketers deal with three kinds of distance
• Miles, time zones, cultural distance
• Time zones have greatest impact on success abroad

• Usually good relationships among contiguous countries

• Associated pattern of economic growth and global trade
• Three market regions or trading blocs based on time zone: the
Americas, Europe, and Asia
• Industrialized, industrializing, underdeveloped countries in each bloc

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 Exhibit 9.1 Three Regional Trading Areas
Roughly Defined by Time Zones

Region Population GDP

The Americas 1.01 billion $25.2 trillion
Europe and Africa 2.00 billion $21.2 trillion
Asia Pacific 4.55 billion $28.7 trillion

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 Marketing and Economic Development 1 of 9
Countries once hostile to foreign trade
• Now see it as necessary to economic growth
Trade through 21st century changing
• Transition from socialist to market-driven economies
• Liberalization of trade, investment policies in developing
countries
• Transfer of public-sector enterprises to private sector
• Rapid development of regional marketing alliances

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 Marketing and Economic Development 2 of 9
Economic Level
• The stage of economic development in a country
• Affects consumer behavior

• Marketer must adjust marketing task accordingly

• Economic level the single most important factor

• United Nation’s stages of economic development

• More-developed countries (MDCs)
• Less-developed countries (LDCs)
• Least-developed countries (LLDCs)

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 Marketing and Economic Development 3 of 9
Newly Industrialized Countries (NICs)
• UN classification system has been criticized
• No longer seems relevant in rapidly industrializing world

• LDCs industrializing quickly are commonly called NICs

• Chile, Brazil, Mexico, South Korea, Singapore, Taiwan examples
• No longer use restrictive trade; now free market reforms
• Attract both trade and foreign direct investment
• Have become formidable exporters of many products

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 Marketing and Economic Development 4 of 9
Economic Growth Factors
• Political stability in policies • Incentives to force a high
affecting development domestic rate of savings and
• Economic and legal reforms direct capital to update
infrastructure
• Entrepreneurship
• Privatization of state-owned
• Planning enterprises (SOES) that had
• Outward orientation once drained national
budgets
• Factors of production
• Large, accessible markets
• Industries targeted for with low tariffs
growth

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 Competition in Coffee Production

© imageBROKER/Alamy
© Benjamin Lowy/Getty
Images

© John Graham
Brazilian production of coffee (on left) has almost always determined world prices for the brew.
Now this commercial dominance is being challenged in two ways. First, Vietnam’s burgeoning
new production (on right) caused world coffee prices to crash in recent years, from a high of
$1.85 per pound in 1997 to about $.50 in 2001. Circa 2015 prices are now back to about $2.00
per pound, after peaking at $3.00 in 2010. And Starbucks is changing the global game in retail
coffee distribution—including in its store in the heart of São Paulo, the historical center of
coffee production in Brazil and the world.
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 Marketing and Economic Development 5 of 9
Information Technology, the Internet, and Economic
Development
• Investment in information technology (IT) important
• Key to economic growth
• Innovation can lead to sustainable future for developed and
developing nations
• Internet cuts transaction costs; increases global reach
• Speeds up the diffusion of new technologies
• Mobile phones and wireless technologies reduce expense of costly
telecom infrastructure

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 Marketing and Economic Development 6 of 9
Objectives of Developing Countries
• Industrialization fundamental objective for most
• Allows for achievement of both economic and social goals

• Foreign investors now seen as vital partners to process

• Sometimes feared as having goals that conflict with host country
• But many countries welcome foreign investment
• Trend toward privatization a major economic phenomenon in
industrialized and developing countries

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 Marketing and Economic Development 7 of 9
Infrastructure
• Assortment of capital goods
• Serve activities of many industries
• Support production and marketing

• Impacts business efficiency of enterprises

• Crucial component of uncontrollable elements facing marketers

• Directly impacts country’s economic growth potential

• Strong infrastructure necessary for exporting goods
• Must support country’s expanding population and economy

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 Business Development

© John Graham
In Jamaica, Pepsi partners with a local fast-food company, co-branding and
supporting local development efforts.
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 Marketing and Economic Development 8 of 9
Marketing’s Contributions
• Marketing vital for nation’s growth
• Efficiency of distribution a key component

• Many economic planners don’t see its importance

• More production oriented than marketing oriented

• Economy’s arbitrator between productive capacity and

consumer demand
• Effectively utilizing production resulting from economic growth

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 Marketing and Economic Development 9 of 9
Marketing’s Contributions continued
• Five weaknesses that indicate need for adjustment in
emerging markets (Sheth)
1. Market heterogeneity
2. Socialpolitical governance
3. Unbranded competition
4. Chronic shortage of resources
5. Inadequate infrastructure

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 Marketing in a Developing Country 1 of 3
Marketing Strategies are Situational
• Efforts must be custom tailored for each circumstance
• Technically elegant strategies ineffective in underdeveloped
countries
• Pricing should vary depending on affluence of society
• Marketer must evaluate potential in developing country
• Existing level of market development
• Receptiveness within the country
• Firm’s own capabilities and circumstances

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 Marketing in a Developing Country 2 of 3
Level of Market Development
• Roughly parallels stages of economic development
• But marketing structures can be simultaneously at many stages
• The system is in a constant state of flux

• Characteristics of a more developed economy

• Greater variety of marketing functions demanded
• More sophisticated specialized institutions to perform functions
• More developed distribution channels

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 Marketing in a Developing Country 3 of 3
Demand in Developing Countries
• Three distinct types of markets coexist in each country
1. Traditional rural/agricultural sector
2. Modern urban/high-income sector
3. Large transitional sector; usual low-income urban slums
• Makes marketing efforts difficult
• Estimating market potential of developing country
• Devising useful segmentation strategies

• Though initially risky, investment worth the reward

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 Monopoly in Ecuador

© John Graham
The irony of Parker Brothers’ introduction of Monopoly to Ecuador is rather
amusing, given President Rafael Correa’s announcement of new anti-
monopoly laws just a year earlier. He was reacting to Carlos Slim’s giant
Mexican Telmex takeover of Ecuador Telecom.

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 Big Emerging Markets (BEMs) 1 of 2
Share important traits
• Are geographically large
• Have significant populations
• Represent sizable markets for wide range of products
• Have strong rates of growth or potential for significant
growth
• Have undertaken significant programs of economic reform
• Of major political importance within their regions
• Are “regional economic drivers”
• Engender expansion in neighboring markets as they grow

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 Big Emerging Markets (BEMs) 2 of 2
Growth from BEMs
• Import more than smaller markets and economies of
similar size
• Development increases demand for capital goods
• Much of which must be imported

• Will be in industrial sectors

• Information, environmental, transportation, energy, and
healthcare technology
• Financial services

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 The Americas 1 of 6
United States-Canada Free Trade Area (CFTA)
• Was world’s largest bilateral trade agreement
• Each country was the other’s largest trading partner

• Created single, continental commercial market

• Worked for trade of all goods and most services
• Eliminated tariffs and trade barriers
• Did not necessitate any political union

• Mexico soon expressed interest in free trade with U.S.

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 The Americas 2 of 7
North American Free Trade Agreement (NAFTA)
• United States, Canada, and Mexico
• Ratified and became effective in 1994
• Single market of 360 million people with a $6 trillion GNP
• Required all to remove barriers and tariffs over 15 years
• Helped to ameliorate long-standing areas of conflict
• Economic relationships in NAFTA continued to grow

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 The Americas 3 of 7
United States Mexico and Canada Agreement (USMCA)
• United States, Canada, and Mexico
• Proposed in October of 2018
• Based on NAFTA with several proposed adjustments
• More access to Canada’s diary sector
• Increased hourly wages in Mexico’s automotive sector are
required
• Digital economy elements have been adjusted

• Follow Up negotiations are required

• Takes effect on 1 January 2020, pending legislative
approval

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 NAFTA and Mexico

© Monica Rueda/AP Images

© John
Graham

Geographic proximity allows Mexicans from Baja, California, to attend Padres

baseball games in close-by San Diego. The team maintains this successful
store just across the border in Plaza Rio shopping center in Tijuana. And of
course, historically, Padre Junipero Serra had visited both places in the late
1700s while establishing the chain of missions in old Spanish California.
NAFTA also gave Taco Bell a second shot at making it in Mexico; this store was
in Monterrey. The company’s 1992, pre-NAFTA incursion failed.
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 The Americas 4 of 7
DR-CAFTA
• Free trade agreement passed in 2005
• U.S., Dominican Republic, and Central American countries
• Includes a wide array of tariff reductions
• Aimed to increase trade and employment among signatories

• Step toward goal of free trade across all Americas

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 The Americas 5 of 7
Southern Cone Free Trade Area (Mercosur)
• Treaty of Asunción provided legal basis
• Calls for common market to allow free movement of goods,
capital, labor, and services among members
• Uniform external tariff

• Includes six countries

• Argentina, Bolivia, Brazil, Chile, Paraguay, Uruguay
• Membership growing; looking to extend free trade with European
Union
• Most successful free trade area in South America

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 The Americas 6 of 7
Latin American Progress
• Political and economic revolution over last 3 decades
• Shift from military dictatorships to democracies
• Shift away from policies of protectionism
• Positive international response
• Billions of dollars invested in Latin America

• Latin American Integration Association (LAIA)

• Caribbean Community Common Market (CARICOM)

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 The Americas 7 of 7
NAFTA to FTAA or SAFTA?
• Free Trade Area of the Americas (FTAA)
• Original goal of NAFTA; free trade extending from Alaska to
Argentina
• Chile envisioned to be first new country added, with membership
extending further south after
• South American Free Trade Area (SAFTA)
• Would be separate from tri-country NAFTA

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 Strategic Implications for Marketing
Development Leads to Change
• Higher incomes and living standards
• Market behavior changes
• Groups with similar tastes and needs (market segments) arise

• As incomes rise, new demand is generated

• Occurs in all income levels
• Demand for costly goods with increasing middle-class

• Emerging markets will be growth area of 21st century

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 Investments in Developing World

© John Graham
People queued for a Chinese-made bus at city center in Havana. China is
making major sales and investments in the infrastructures of the developing
world, including in Cuba, a member country of LAIA and a fellow
“communist” country.
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