The global market is still developing, and a market that is developing is dynamic. The constant change offers opportunities and presents risks to countries and their domestic industries. In this lesson, you’ll learn about some of these risks and opportunities.
Meet Norman. Norman is the prime minister of a fully developed country. Its economy has one of the highest GDPs in the world, and some of its domestic companies have annual revenue that exceed the GDP of several undeveloped countries. While Norman’s country has enjoyed a relatively stable period of prosperity and wealth that few can rival, the world is changing. New competition is coming onto the world stage every day from emerging markets.
An economically developing country transitioning into an economically developed country is considered to be an emerging market. Emerging markets demonstrate rapid economic growth, relative stability, a good infrastructure, and a legal and regulatory system supportive of a market economy and trade. Emerging markets offer Norman’s country a great opportunity to expand trade and for its companies to make new investments and capture new customers. Of course, if successful, emerging markets will become fully developed markets, and these countries and their companies will eventually become direct competitors with Norman’s country and its business in the global marketplace.
Eroding Economic Borders
Another facet of the changing landscape of the global marketplace is the erosion of economic borders. We can see this in the rise of truly global companies, the use of outsourcing and in the process of economic integration. Let’s look at each in some detail.
Many of the companies in Norman’s country have become global companies. While a global company may be headquartered in Norman’s country, it conducts business all over the world. In fact, some of these companies may not even primarily rely upon their domestic market – Norman’s country – for growth and profit.
As companies go global or just seek to lower costs, they often turn to outsourcing. Outsourcing occurs when a company contracts with another company to provide goods or services that are traditionally done in-house.
For example, a furniture company may outsource the production of its furniture to China, where the labor is cheaper. Companies often outsource to companies in emerging markets, which helps those countries develop even more rapidly. While outsourcing can lead to increased development of an emerging market, increased profits for companies, and cheaper products and services for Norman’s constituents, it also means that jobs once available at home are now gone.
Companies are not the only players in the global market that are knocking down traditional borders and barriers to international trade and commerce. Whole countries are doing it, too, through the process of economic integration. Economic integration is an agreement between two or more countries to reduce or eliminate economic barriers to trade and commerce between their countries.
For example, Norman’s country is a party to several trade agreements, which are treaties that govern trade between treaty signatories. Norman’s country is also a member of a free-trade area, where there are no tariffs or other trade barriers between member states, but the barriers are kept against non-members.
There are even more integrated economies, such as a customs union, where trade barriers are eliminated between members and the members pursue a unified trade policy concerning outside non-members. A common market is even more integrated, as it eliminates barriers to capital, labor, and technology across borders. The most integrated economies are economic unions where even monetary, fiscal, and tax policies are integrated with a common currency used by members. The European Union is an example of this.
Shifting Focus of Labor
Since traditional markets and outsourcing have taken away Norman’s country’s advantage in traditional manufacturing and heavy industry, it now focuses its economic efforts on scientific, technological, services, and information industries. This means that Norman must face the reality of a shift in the nature of his country’s labor force.
When brains become more important than brawn, policies need to be shifted to help Norman’s citizens prepare for the different jobs available. This means Norman’s country must retool its infrastructure to support these new industries, change its educational system, and retrain its current workforce in order to be competitive in the global market.
Technology Expands Opportunity
Norman’s citizens do have some growing economic opportunities because of technology. It no longer takes a huge amount of capital and resources to run a global business. Technology and outsourcing allow even the smallest business to succeed in the global market if there is a demand for the product or service offered.
Marketing on the Internet allows a small business to reach potential customers all over the world. And rather than spending millions on a factory, equipment, and payroll, a small business can contract with an oversea outsourcing firm to produce products as needed. Computer systems, software programs, and the Internet can provide access to a treasure trove of information and also provide much of the business and administrative support needed by a small business to compete effectively in the global market.
The global market is a dynamic place where participants include global companies that operate all over the world, mature developed economies, and emerging markets. Countries with both mature and emerging markets engage in different levels of economic integration, from trade treaties all the way up to economic unions.
While emerging markets provide new sources of customers and cheap labor for global companies, they also present challenges to developed economies that lose jobs and industries to them. These mature economies face a dramatic shift in labor requirements from industrial-based skills to knowledge and skills related to the digital age that require changes to educational systems and infrastructure. On the other hand, individuals across the globe have the ability to engage in the global economy not only as consumers but as producers with the help of technology and outsourcing.
After completing this lesson, you should be able to:
- Define global market
- Identify how developed countries grow their global economies
- Recognize the growth of emerging markets, economic integration and outsourcing in global marketing