Individual economies

Whilst the global factors listed above have aided the development of a world economy, marketers must consider carefully individual economies. A study of these helps answer the questions - how big is the market and what is it like? Currently there are over 200 individual countries in the world.

Size of market

General indications of market size include population (growth rates and distribution) and income (distribution, per capita, GNP).

a) Population: In general, the larger the population, the bigger the market. However there is no correlation between income level and population. China has 2 billion plus people, India 1 billion, Zimbabwe 8 million. However, they do not have the same income per capita as the USA or UK. In 1993 the USA population of 252.2 million, the UK 57.4 million and Africa 400 million, were respectively 6%, 1.5% and 9% of the world's population. However the USA and UK had an infinitely higher GNP per capita income than Africa, US$ 22,520, UK $17,300 and Africa $ 270 respectively (1989).

Different countries experience different population growth rates. In the early 90s, the UK had an annual growth rate of 0.1%, the Ivory Coast 6%, and Africa in general, 3% per annum. Low income countries and oil rich countries have the largest growth rates. Growth rates have a dual edge - they are good for sales but bad for world resources. The world population, currently standing at 5 billion is experiencing a rapid growth rate. It is expected to reach 7 billion by the end of the century. The strain on world resources is likely to be very large. The distribution of the population is also important. Different age groups have different needs and population density should mean good market potential, the higher the better. The Netherlands have 1000 persons per square mile, Bangladesh 1,791 but the USA only 65 persons per square mile. However, the USA spends more per capita than Bangladesh

b) Income: No one has yet been able to assess accurately the impact of the AIDS pandemic on world population and economic activity. South Africa estimates AIDS will cost South African industry R16.7 billion by the year 2000 (Business Herald - Nov. 24.1994). Suffice to say, unless a cure or prevention is found, it could be serious, especially in Africa and South East Asia, the world's "hot spots"

Income is the most important variable affecting market potential. Markets are not markets without money to spend. Interestingly, there is an inverse correlation between GNP per capita and income elasticity of demand for food. Asia has a 0.9 income elasticity of demand and the USA 0.16.

The distribution of income is very uneven. In Kenya the lowest 20% of the population receive less then 3% of national resource. This bimodal distribution of income means marketers must analyse two economies in a country. Per capita measures have therefore, many limitations. Per capita judges a country's level of economic development and its degree of modernisation and progress in health, education and welfare. Half of the world's population lives with an average per capita income of only US$ 270. Per capita is usually reflected in US dollars and is only valid for comparison if exchange rates are equal. Exchange rates reflect international goods and services in a country but not domestic consumption.

Another limitation of per capita measures is the lack of comparability with the figures themselves. The US budget contains food, clothing and shelter. In many of the less developed nations these items may be largely self provided and therefore not reflected in national income tables. Also in the UK, snow equipment is included, and this is not, obviously, in Africa and parts of Asia. Other limitations are that sales of goods are not well correlated with per capita income and if there is great unevenness in income distribution, per capita figures are less meaningful. Product saturation can be equally troublesome in affecting market potential. A vacuum cleaner in the Netherlands has a 95% household penetration rate, but only 7% in Italy.

Gross National Product is a better indicator of potential than Gross Domestic Product as GDP includes more than "product". World GNP figures reveal the concentration of wealth in the three nations, the USA, Japan and Western Europe. Africa trails far behind (see table 2.3)³.

However, when evaluating markets it is wise to consider individual product areas. For example, Belgium's GNP is better than India's but India's, consumption of steel is 3 times that of Belgium's.

The nature of economy

More than money makes up an economy's economic environment. Natural resources -raw materials now and in the future are important. If synthetic gold or tobacco were developed or, in the case of the latter, became unfashionable, Zimbabwe's economy would be ruined.

Topography may produce two, three or more submarkets in a country. Zambia, for example, has "rural" and "urban" areas with different needs and wants.

Extremes of climate - like the Southern African drought in 1992 can devastate economies and derail any economic development plans and exports. Simply, products are not available to export, because they are being consumed by the domestic economy.

The nature of economic activity

Economic activity is often correlated to the type of economic activity. Various methods have been derived to classify economies. These are:

Stages of market development

Global markets are at different stages of development which can be divided into five categories based on the criterion of gross national product per capita.

i) Preindustrial countries - incomes less than US$ 400 GNP per capita. Limited industrialisation, low literacy rates, high birth rates, heavy reliance on foreign aid, political instability. Parts of Sub-Saharan Africa. Little market potential.

ii) Less developed countries - per capita between US$ 401 and US$ 1,635. Early stages of industrialisation, growing domestic market, mature product markets, increasing competitive threat.

iii) Developing countries - per capita income between US$ 1,636 and US $ 5,500. Decrease in percentage of agricultural workers, industrialisation, rising wages, high literacy rates, lower wage rates than developed countries, formidable competitors.

iv) Industrialised countries - per capita income between US$ 5,501 and US$ 10,000. Moving towards post industrialisation, high standard of living.

v) Advanced countries - per capita income in excess of US$ 10,000. Post industrialisation, information processors, knowledge based, less machine based. Product opportunities are in new products, innovations and raw materials plus fresh foods.

The World Bank classification

The World Bank has drawn up a classification of economies based on GNP per capita.

i) Low income economies, China and India, other low-income-GNP per capita income of between US$ 675 or less, 41 nations including Tanzania, Kenya, Zambia and Malawi.

ii) Middle income economies, lower middle income, GNP per capita of between US$ 676 and US$ 2,695, 40 nations including Zimbabwe, Mexico and Thailand.

iii) Upper middle income, GNP per capita of between US$ 2,676 and US$ 8,355, 17 nations including Brazil, Portugal and Greece.

iv) High income economies, OECD members and others, GNP per capita of between US$ 8,356 or more, 24 nations including UK and the USA.

v) Other economies - communist bloc.

Mozambique and Switzerland are the two extreme ends of the spectrum with US$ 80 per capita and US$ 29,880 per capita respectively.

Rostow: Whilst economic in nature, Rostow (1971) produced a five stage model of economic takeoff:

· Stage 1 traditional society, little increase in productivity, no modern science application systematically, low level of literacy

· Stage 2 the preconditions of takeoff, modern techniques in agriculture and production, developments in infrastructure and social institutions

· Stage 3 the takeoff, normal growth patterns, rapid agricultural and industrial modernisation, good social environment.

· Stage 4 the drive to maturity, modern technology applied to all fronts, international involvement, can produce anything

· Stage 5 the age of high mass consumption, production of durable goods and services, large amounts of

These classifications enable marketers to assess where and how to operate in countries which may display the stage characteristics. For example African exporters would look to stage 4 and 5 economies to obtain the greatest revenue opportunities for other produce.

Another way to assess the market alternatives to a potential global marketer is to look at the origin of its national product - is it farm or factory generated? Farm workers tend to have low incomes. Input-output tables provide other insights into a country's potential, that is, what inputs go into a particular industry's output? What combination of labour, materials and equipment?