•Low-income countries

•concentration in Africa, south of

Sahara
•Afghanistan, Haiti, Nepal, Liberia,
Mozambique, Senegal
•also known as pre-industrial
countries
•with per capita GNI of ≤$1,005
International Marketing AT BANZON 2
•Low-income countries
•Characteristics:
•limited industrialization & high
percentage of population
engaged in agriculture &
subsistence farming
•high birthrates
•low literacy rates
International Marketing AT BANZON 3
•Low-income countries
•Characteristics:
•heavy reliance on foreign aid
•political instability & unrest
•In general:
•these countries represent limited
markets for all products
•are not significant locations for
competitive threats
International Marketing AT BANZON 4
•Lower-middle income countries
•Philippines, Myanmar, Nicaragua,
Indonesia, Cambodia, Bhutan
•also known as less developed countries
•per capita GNI between $1,006 and
$3,955

International Marketing AT BANZON 5

•Lower-middle income countries
•at the early stages of industrialization
•locations for the production of
standardized or mature products
(clothing for export markets)
•consumer markets here are expanding

International Marketing AT BANZON 6

•Lower-middle income countries
•LDCs represent an increasingly
competitive threat as they mobilize
their relatively cheap labor to serve
target markets in the rest of the world.
•LDCs have a major competitive
advantage in mature, standardized,
labor-intensive products like athletic
shoes.
International Marketing AT BANZON 7
•Upper-middle income countries
•Malaysia, Lebanon, Mexico, China,
Thailand, Cuba, Maldives
•also known as industrializing countries
•with per capita GNI between $3,956
and $12,235

International Marketing AT BANZON 8

•Upper-middle income countries
•population is engaged more in
industrial sector
•degree of urbanization increases
•have high rates of literacy and
advanced education
•have rising wages though they have
significantly lower wage costs than
advanced countries
International Marketing AT BANZON 9
•High income countries
•Netherlands, New Zealand, USA, UK,
Korea, Japan, Palau
•also known as advanced, industrialized,
post-industrial or First World
•per capita GNI $12,236 or more

International Marketing AT BANZON 10

•High-middle income countries
•with the exception of oil-rich nations,
these countries reached their present
income through sustained economic
growth

International Marketing AT BANZON 11

•High income countries
•Characteristics:
•service sector is important (>50% of
GNP)
•product & market opportunities are
heavily dependent on new products
& innovations

International Marketing AT BANZON 12

•Basket cases
•countries with economic, social &
political problems that are so serious
making them unattractive for
investment and operations (Ethiopia &
Mozambique)
•countries which were once growing but
became divided by political struggles
•companies avoid these countries or do
business on a limited basis
International Marketing AT BANZON 13
•72% of world income is concentrated
in the Triad (North America, EU &
Japan)
•Triad accounts for 13% of world
population
•most populous countries in the
world account for 59% of world
income

International Marketing AT BANZON 14

•the concentration of income in the high
income and large population countries
means that a company can be global –
derive a significant proportion of its
income from countries at different stages
of development – while operating in 10
or fewer countries.

International Marketing AT BANZON 15

•The poor have no money.
•The aggregate buying power of poor
communities can be substantial.
•In rural Bangladesh, villagers spend
considerable sums to use village phones
operated by local entrepreneurs.

International Marketing AT BANZON 16

•The poor are too concerned with fulfilling
basic needs to waste money on
nonessential goods.
•Those who are too poor to purchase a
house do buy luxury items such as TV
and gas stoves to improve their lives.

International Marketing AT BANZON 17

•The goods sold in developing countries are so
inexpensive that there is no room for a new
market entrant to make a profit.
•Because the poor often pay higher prices for
many goods, there is an opportunity for
efficient competitors to realize attractive
margins by offering quality and low prices.

International Marketing AT BANZON 18

•People in BOP markets cannot use advanced
technology.
•Residents of rural areas can and do quickly
learn to use cell phones, PCs and similar
devices.

International Marketing AT BANZON 19

•Global companies that target BOP markets
will be criticized for exploiting the poor.
•A global company offering basic goods and
services that improve a country’s standard of
living can earn a reasonable return while
benefiting a society.

International Marketing AT BANZON 20

•The stages of development can serve as
guide in evaluating product saturation
levels (percentage of buyers or
households who own a particular
product).
•In countries with low per capita income,
product saturation levels for many
products are low.
International Marketing AT BANZON 21
•A nation trades because it expects to gain
something from its trading partners.
•Therefore it is a positive sum game.
•How absolute and relative advantages
affect trade options are based on trading
partners’ production possibility curves.

International Marketing AT BANZON 22

•Production possibility curve (PPC)
•Without trade, a nation would have to
produce all commodities by itself in order
to satisfy all its needs.
•Each country has a unique set of
resources, thus each possesses its own
unique PPC.

International Marketing AT BANZON 23

Units of computer

0 B
Units of automobile
International Marketing AT BANZON 24
•Production possibility curve (PPC)
•The PPC shows the maximum number of
units made when computers and
automobiles are produced in various
combinations, since one product can be
substituted for the other within the limit
of available resources.

International Marketing AT BANZON 25

•Production possibility curve (PPC)
•The country may elect to specialize or put
all its resources into making either
computers (point A) or automobiles (point
B).
•At point C, product specialization has not
been chosen, thus, a specific number of
each of the 2 products will be produced.

International Marketing AT BANZON 26

•Production possibility curve (PPC)
•The country must determine the proper
mix of any 2 products and must decide
whether it wants to specialize in 1 of the
2.
•Specialization will likely occur if it will
allow a country to improve its prosperity
by trading with another nation.

International Marketing AT BANZON 27

•Principle of Absolute Advantage
•A country should export a commodity that
can be produced at a lower cost than can
other nations.
•Conversely, it should import a commodity
that can only be produced at a higher cost
than can other nations.

International Marketing AT BANZON 28

 Product USA Japan

Case1 Computer 20 10
Automobile 10 20

Case 2 Computer 20 10
Automobile 30 20

International Marketing AT BANZON 29

 PRODUCT USA JAPAN

• Principle of Absolute Advantage COMPUTER 20 10

CASE 1

•Case 1 reveals that USA has an AUTOMOBILE 10 20

COMPUTER 20 10
absolute advantage in CASE 2
AUTOMOBILE 30 20

computers while Japan has an

absolute advantage in
automobiles.
•Each country should specialize in
the product for which it has an
absolute advantage to use its
resources more effectively.
International Marketing AT BANZON 30
•Principle of Absolute Advantage
•The US should import automobiles from
Japan rather than manufacture them.
•Japan should export automobiles and
import computers.

International Marketing AT BANZON 31

•Principle of Absolute Advantage
•A problem with this principle is it fails to
explain whether trade will take place if
one nation has absolute advantage for
all products under consideration.

International Marketing AT BANZON 32

•Principle of Relative
PRODUCT USA JAPAN

COMPUTER 20 10
(Comparative) Advantage CASE 1
AUTOMOBILE 10 20

•Case 2 shows that US has CASE 2

COMPUTER
AUTOMOBILE
20
30
10
20

absolute advantage for both

products.
•The efficiency of the US
enables it to produce more of
both products at a lower cost.
•At first glance, it may appear
that US has nothing to gain
from trading with Japan.
International Marketing AT BANZON 33
•Principle of Relative (Comparative)
Advantage
•British economist David Ricardo argues
that absolute production costs are
irrelevant.
•More meaningful are relative
production costs, which determine
whether trade should take place and
what items to export or import.
International Marketing AT BANZON 34
•Principle of Relative (Comparative)
Advantage
•Ricardo argues that a country may be better
than another country in producing many
products but should only produce what it
produces best.
•It should concentrate on either a product
with the greatest comparative advantage or
a product with the least comparative
disadvantage.
International Marketing AT BANZON 35
•Principle of Relative
PRODUCT USA JAPAN

COMPUTER 20 10
(Comparative) Advantage CASE 1
AUTOMOBILE 10 20

•Case 2 shows how relative CASE 2

COMPUTER
AUTOMOBILE
20
30
10
20

advantage varies from

product to product.
•The extent of relative
advantage can be found by
determining the ratio of
computers to automobiles.

International Marketing AT BANZON 36

•Principle of Relative PRODUCT USA JAPAN

(Comparative) Advantage CASE 1

COMPUTER
AUTOMOBILE
20
10
10
20

•The advantage ratio for CASE 2

COMPUTER
AUTOMOBILE
20
30
10
20

computers is 2:1 (20:10) in

favor of the US.
•Also in favor of the US but
to a lesser extent, is the
ratio for automobiles, 1.5:1
(30:20).

International Marketing AT BANZON 37

•Principle of Relative PRODUCT USA JAPAN

(Comparative) Advantage CASE 1

COMPUTER
AUTOMOBILE
20
10
10
20

•The ratios indicate that US CASE 2

COMPUTER 20 10

has a 100% advantage over AUTOMOBILE 30 20

Japan for computers but

only a 50% advantage for
automobiles.
•Therefore, US should
specialize in computers.

International Marketing AT BANZON 38

•Principle of Relative (Comparative)
Advantage
•On the other hand, Japan, having the
least disadvantage in automobiles,
should make and export them to the US.

International Marketing AT BANZON 39

•Exchange ratios, trade and gain
•The analysis of relative advantage can
indicate what a country should export
and import, but this cannot explain
exactly how a country will gain from
trading with a partner.
•In order to determine the extent of
trading gain, the examination of the
domestic exchange ratio is required.
International Marketing AT BANZON 40
 •Exchange ratios, trade and
gain PRODUCT USA JAPAN

•Case 2 shows that Japan’s CASE 1

COMPUTER
AUTOMOBILE
20
10
10
20

domestic exchange ratio CASE 2

COMPUTER 20 10
AUTOMOBILE 30 20
between 2 products is 1:2
(10 computers for every 20
automobiles).
•In short, Japan must give up
2 automobiles to make 1
computer.

41
International Marketing AT BANZON
•Exchange ratios, trade and
gain PRODUCT USA JAPAN

•But by exporting automobiles

COMPUTER 20 10
CASE 1
AUTOMOBILE 10 20

to the US, Japan has to give CASE 2

COMPUTER
AUTOMOBILE
20
30
10
20

up only 1.5 automobiles in

order to get 1 computer.
•Thus, trading essentially
enables Japan to get more
computers than feasible
without trading.

International Marketing AT BANZON 42

•Exchange ratios, trade and PRODUCT USA JAPAN

gain CASE 1
COMPUTER
AUTOMOBILE
20
10
10
20

•The US domestic exchange CASE 2

COMPUTER
AUTOMOBILE
20
30
10
20

ratio is 1:1.5 (20 computers

for every 30 automobiles).
•The incentive for US to trade
with Japan occurs in the
form of gain from
specializing in computer
manufacturing and
exchanging computers for
automobiles from Japan. 43
•Exchange ratios, trade and gain
•The extent of the gain is
determined by comparing the
domestic exchange ratios in 2
PRODUCT USA JAPAN
countries. COMPUTER 20 10

•In the US, 1 computer brings 1.5

CASE 1
AUTOMOBILE 10 20

automobiles in exchange. CASE 2

COMPUTER
AUTOMOBILE
20
30
10
20

•But this same computer will

result in 2 automobiles in Japan.
•Thus trading is the most
profitable way for the US to
employ its resources.
44
•Factor endowment theory
•The varying factor inputs and proportions
for different commodities, together with
the uneven distribution of such factors of
production in different regions of the world
are the basis for this theory by Hechscher-
Ohlin.

International Marketing AT BANZON 45

•Factor endowment theory
•The theory holds that the inequality of
relative prices is a function of regional
factor endowments and that comparative
advantage is determined by the relative
abundance of such endowments.
•There is a mutual interdependence among
production factors, factor endowments,
income, prices and trade.

International Marketing AT BANZON 46

•Factor endowment theory
•A change in one affects the rest.
•Since countries have different factor
endowments, a country would have a
relative advantage in a commodity that
embodies to some degree that country’s
comparatively abundant factors.

International Marketing AT BANZON 47

•Factor endowment theory
•A country should thus export that
commodity that is relatively plentiful.
•This commodity can then be exchanged for
goods that would use large quantities of the
country’s scarce factors if domestically
produced.

International Marketing AT BANZON 48

•Factor endowment theory
•A country that is relatively abundant in labor
but relatively scarce in capital is likely to have a
comparative advantage in the production of
labor-intensive goods and to have deficiencies
in the production of capital-intensive goods.
•This explains why China, a formidable
competitor in textile products, has to depend
on US and European firms for oil exploration
within China itself.
International Marketing AT BANZON 49
•Identifying export barriers
•Some export barriers are self-made (firms
create and impose these barriers upon
themselves) –lack of commitment to export.
•Many export barriers are uncontrollable –
national export policy, tax systems, market
distance, importing nations’ trade barriers.

International Marketing AT BANZON 50

•Identifying export-oriented firms
•It is important to identify the characteristics
that differentiate export-oriented firms
from those that are not so inclined.
•Systematic and nonsystematic exporting
firms differ in terms of organizational,
export marketing and managerial
characteristics.

International Marketing AT BANZON 51

•Identifying export-oriented firms
•Sporadic exporters and regular exporters
are similar in terms of size, age and size of
export orders.
•Differences exist in the areas of initial
market-entry influences, export profit
margins, export distribution channels and
information use.

International Marketing AT BANZON 52

•Determinants of export performance
•Researchers have used different variables as
measures of export performance (export
sales, export sales growth, ratio of export
sales to total sales, ratio of export profits to
total profits, etc.)
•Each of these measures has limitations so
the use of multiple measures allow a more
complete picture of performance.
International Marketing AT BANZON 53
•Research & development and infrastructure
•Policymakers should attempt to understand
factors that affect trade performance.
•A country should be vitally concerned with
the viability of its economic lifelines that
enable them to meet the challenge of an
increasingly competitive world marketplace.

International Marketing AT BANZON 54