1:  The Global Economy 

OVER the next 25 years, the world will see the biggest shift in economic strength for more than a century. Today the so-called industrial economies dominate the globe, as they have for the past 150 years or so. Yet within a generation several are likely to be dwarfed by newly emerging economic giants. History suggests, alas, that such shifts in economic power are rarely smooth. A growing number of people in the rich industrial world are already urging their governments to prepare for battle against the upstarts.

The upstarts are heart-warmingly many. Scores of countries in the third world and the former Soviet block have embraced market-friendly economic reforms and opened their borders to trade and investment. These policies promise rapid growth in more economies than ever before. The four Asian tigers (Hong Kong, Singapore. South Korea and Taiwan) that have pushed aggressively into western markets in the past three decades have a combined population of only 73m; even adding in Japan, the original Asian tiger, the total is less than 200m. Now, however, more than 3 billion people in Asia, Latin America and Eastern Europe are joining the rich world's 1 billion or so in the market-economy club.

The Coming Boom

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Real GDP growth, annual average %          1974 -          1994 -

                                                                     1993          2003

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Rich Industrial countries                              2.9          2.7

Developing countries                                   3.0          4.8

        of which

     East Asia                                                   7.5          7.6

     South Asia                                                 4.8          5.3

     Latin America                                             2.6          3.4

     Eastern Europe & Former Soviet Union       1.0          2.7

     Sub - Saharan Africa                                  2.0          3.9

     Middle East & North Africa                          1.2          3.8

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The current expansion in international trade and capital flows between the first and the third worlds has been similarities with the late 19th century, when investment and trade also exploded between Europe and the countries of the new world, such as America, Argentina and Australia. As output in these new economies swelled, they created fast-growing markets for European goods and offered high returns on overseas investments. Britain was running a current-account surplus of around 8-9% of GDP, which it reinvested in bonds to finance the construction of foreign railways and other projects. By 1913 Britain's total foreign assets were equivalent to 180% of the country's GDP. That early attempt at globalisation was derailed by two world wars, an outbreak of protectionism and the depression of the 1930's.

There are also parallels with the period immediately after the second world war, when GDP per head in Western Europe and Japan caught up rapidly with American levels. In 1950 America accounted for around half of world output, similar to the share of all the developed economies today; now the American share is less than a quarter. Yet America has benefited hugely as it's trading partners have become richer : the rapid economic expansion in Europe and Japan during the 1950's and 1960's helped to boost the growth in America's income per head to the fastest in it's history. The rich economies should enjoy a similar stimulus now so long as they do not disrupt the economic linkages between the first and the third worlds.

1: 2.  Billions of consumers.

On the demand side, developing countries are becoming increasingly important markets for western goods. Some 42% of America's exports, 20% of Western Europe's (47% if intra-European Union trade is included), and 48% of Japan's now go to the third world or to countries of the former Soviet block. Western Europe exports twice as much to developing countries as it does to North America and Japan together; and America exports more to Japan. And since Asia and Latin America are the world's fastest-growing markets, those export shares are likely to increase.

In the three years to 1993 America's exports to developing countries grew at an annual average of 12%, while those to other rich countries rose by only 2% a year. Over the same period, third-world countries increased their total imports by 37%, more than accounting for the total increase in the world imports; their exports rose by a  more modest 22%. In other words, for the first time developing economies were acting as a "locomotive", helping to pull the rich world out of it's recession of the early 1990's.

2020 vision GDP's at PPP*

fig. 1: 2: 1

fig. 1: 2: 2

1: 3.  Underlying concepts

As far back as 1776, Adam Smith, widely regarded to be the founding father of modern economics, wrote the following in his classic work The Wealth of Nations:

Consumption is the sole end and purpose of all production and the interests of the product ought to be attended to only so far as it may be necessary for promoting those of the consumer.

In essence, it does not matter how good a firm may think its product, or how well organised its organisation, unless it has customers. Without customers, there is simply no business to conduct. In the statement above, Adam Smith has given the essence of the central guiding theme of the subject of marketing. The key word is consumer, as it is the identification and satisfaction of consumers' requirements that form the basis of the modern marketing concept.

In order for a profit-making enterprise to prosper, or even to survive, its management must work hard to retain its existing markets against competition and must continually strive to counter technical obsolescence and changes in consumer tastes by attempting to secure new and profitable customers. Non-profit-making concerns must continually justify their existence in terms of their usefulness to society. They have to answer to interested parties who may well withdraw their financial support if the goods or services they offer to the community do not match the community's requirements. The marketing concept, which puts the emphasis on customers and the identification and satisfaction of customer requirements, results in the customer or consumer becoming the central focus of an organisation's activities.

Some people view the subject of marketing as a branch of applied economics. Other writers and practitioners have worked for a number of years in a specialised field of marketing such as advertising, brand management or marketing research. It is understandable that such people often regard their particular speciality as the most important facet of marketing. Some people take a rather myopic view of the subject and see marketing merely as a collection of well-developed management techniques, which when combined, constitute a functional area of the organisation's management operations. More enlightened practitioners and theorists view the subject as an overriding business philosophy which guides the organisation in everything it does.

Essential knowledge.

1: 4.  Accepted United Kingdom definition

If you are a student of marketing, you are likely to have to sit examinations set by a United Kingdom examining body. The generally accepted UK definition of marketing is that given by the Institute of Marketing. It would be wise to commit this particular definition to memory, (whilst not forgetting that marketing is a very wide ranging subject which can be looked at from many different points-of-view):

Marketing is the management process which identifies, anticipates and supplies

customer requirements efficiently and profitably.

1: 5.  The dispersal of markets

Because of developments during the period of the British Industrial Revolution, firms could produce more in terms of volume than the local economy could absorb. Consumption therefore became dispersed over greater geographical distances and producers no longer had immediate contact with their markets. To get over this problem, many forward-thinking entrepreneurs of the time started to plan their business operations in a 'marketing-orientated' manner, although the terms 'marketing' or 'marketing orientation' were not formally used to describe this process until well into the 20th century.

In order for producers to be able to manufacture goods and services that would appeal and sell in widely dispersed markets, it became necessary for them to carefully analyse and interpret the needs and wants of customers and to manufacture products which would `fit in' with those needs and wants

Marketing is often viewed as:

1 a social process: At a macro level, marketing is viewed as a social process by which individuals and groups obtain what they need and want by creating and exchanging things of value.

2 a distributive system: Marketing is viewed as a process whereby a democratic society, operating within a free market or mixed economy, evolves a system of distribution that facilitates transactions resulting in exchange and consumption.

3 a functional area of management: Marketing is seen as a functional area of management, usually based in a particular location within the organisation, which uses a collection of techniques, e.g. advertising, public relations, packaging, etc., to achieve specific objectives.

4 an overall business philosophy: Many successful firms see marketing as the keystone of their business. Marketing in such firms is viewed not as a separate function, but rather as a profit-orientated approach to business that permeates not just the marketing department but the entire business. The central mission of the entire organisation is seen as the satisfaction of customers' requirements at a profit (or, in non-profit sectors, at a maximum level of efficiency or minimum level of cost). This is achieved by focusing the attention of the entire organisation on the importance of the customer and the needs of the market place.

5 a targeting or allocative system: Marketing is perceived as the way any organisation or individual matches its own capabilities to the needs and wants of its customers. From an organisational point of view, marketing is seen as the primary management function that organises and targets the activities of the entire organisation in order to convert consumer purchasing power into effective demand. Its objective is to move the product or service to the final consumer or user, in order to achieve company profit (or cost efficiency).

1: 6.  Marketing as an entrepreneurial function

The process of matching the resources of a firm to the needs and wants of the market place is called entrepreneurship. Men such as Josiah Wedgwood, i.e. pottery (1730-95) came to epitomise the traditional entrepreneur with their ability to 'sense' what the market wanted in terms of design, quality and price, then organise production and distribution to satisfy effective demand at a profit. The early entrepreneurs were practising an early, albeit simplistic, form of marketing activity, although it was not called marketing as such.

1:7.  The effect of job specialisation

A craftsman, such as a blacksmith or potter, develops a high degree of skill in a particular activity. The craft industries were in fact based on an early form of division of labour which resulted in specialisation and greater productivity. Industrialisation took the processes of specialisation and division of labour a stage further. Specialisation resulted in greater productivity which, in turn, reduced costs and hence the selling price of products. However, the rise in job specialisation also increased the need for exchange. Larger-scale production meant that marketing channels had to be created to facilitate the distribution of goods to enable the effective demand from the much larger market to be met. This development laid the foundations of the modern industrial economy, which is still based on the fundamental concept of trade or exchange.

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