Arizona State University - MKT 397 Study Guide for Exam 2 - Weeks 4 and 5.Economic Environment Analysis
Blackboard Lectures
Economic Environment
... [Show More] Analysis I
Key Components of the Country Analysis Framework
Stakeholders (“Players of the game”)
Goals of key participants
Various types of constraints:
Resources constraints
Formal constraints
Informal constraints
The analysis of the economic environment is focused on which component of the Country Analysis
framework? A: resource constraints
A marketing manager is thinking about entering a foregin market. He would like to access the market
potential. What information would he need?
Part 1 (Demographic) : How many additional customers?
Growth rate of the customer base?
Part 2 (Economic): How much can they afford to buy?
Growth of customer buying power?
Export or produce locally?
Funding the market entry?
Information seldom exists to answer these questions directly.
Use information that IS available to try to answer the question
Fertility rate: The average number of children a woman is expected to have in her lifetime
1. Assessment of market potential
2. Demographic drivers of market potential
3. Economic drivers of market potential
4. Fertility rate in demography
5. Exercise based on Science videographi ;
www.sciencemag.org.ezproxy1.lib.asu.edu/site/special/population/pop-intro-movie.xhtml
Economic Environment Analysis II
1. The demographic transition model
a. Assumes a ‘closed’ system (no migration); in between the birth rate and the death rate is
the population growth rate, and on the horizontal line is time, y-axis is the birth rate and
the death rate. Birth rate is consistently higher than the death rate, which makes the
population a GROWTH rate.
2. The transitions in the model, their causes and consequences
a. Both the birth rate and the death rate were relatively high in an early point in the country.
The later in history, the death rate goes down, while the birth rate was steady and high. At
some point in the nation’s history the birth rate and the death rate came down with the
birth rate lagging.
b. There are some countries where the birth rate is below the death rate, which means that
the population is declining. It is happening in Japan and expected to happen to a few
countries in Europe in the future.
c. The causes for a decline in death rate is economic changes and cultural changes.
Improvements in public health and medicine helps kill the death rate. Cultural changes
such as women education and women working helps the economy.
d. As economies develop along with cultural changes this causes them to have fewer
children.
e. Consequences:
i. The demographic dividend.
ii. Aging population; economic consequences and potential political consequences.
iii. Productivity growth is the only way for society to grow it’s standards, as a
population ages, their economic activity goes down.
3. Concept of demographic dividend
a. Going back to the 1970’s, when China was still relatively underdeveloped, it was a
triangle shaped population. and by the 2000’s they had a lot more people in China. There
was a bulge in the working population.
b. It is called the dividend because the population (majority in the working class) can
perform economic activity and have economic value.
4. The first transition in the model is a decrease in the death rate.
Economic Environment Analysis III
1. Comparing incomes and purchasing power across country markets
2. Demographic Transition Model: Key conclusions
Populations in developed countries are aging
In some developed countries, populations are beginning to shrink
Populations in developing countries are still growing (notable exception: China), not as
fast as typically developing countries (1 child policy)
Assessing the consumption potential of people in other countries:
Example: Annual salaries of software engineers: India 360,000 and United States: $90,000 US.
Suppose in the foreign currency market, 1 US=60 rupees. A software engineer in the US earns 15 more
than their Indian counterpart.
In addition to incomes earned, also need to consider prices paid for the same product in the two
countries.
What should the “exchange” (conversion) rate be so that a gallon of milk costs the same in both
countries?
Example: Milk prices in U.S and India; India: 105 rupees per gallon; United States: 3.50 US per gallon
3.50 US$= 105 rupees; 1 U.S dollar = 30 rupees (105/3.5). Different from the market exchange rate.
In India, a rupee has twice the purchasing power that is implied by the market exchange rate.
Economic Environment Analysis IV
1. Purchasing Power Parity (PPP)
a. 1 U.S. $= 30 rupees (purchasing power parity (PPP) exchange rate for US dollar and the [Show Less]