Chapter outline

(Cateora 215)

Cateora. International Marketing, 14th Edition. McGraw-Hill Learning Solutions, 112008. .

9: Emerging Markets

CHAPTER OUTLINE

Global Perspective: Wal-Mart, Tide, and Three-Snake Wine

Marketing and Economic Development

Stages of Economic Development

NIC Growth Factors

Information Technology, the Internet, and Economic Development

Objectives of Developing Countries

Infrastructure and Development

Marketing’s Contributions

Marketing in Developing Countries

Level of Market Development

Demand in Developing Countries

Marketing in a Developing Country

What you should learn from Chapter 9:

• The political and economic changes affecting global marketing

• The connection between the economic level of a country and the marketing task

• Marketing’s contribution to the growth and development of a country’s economy

• The growth of developing markets and their importance to regional trade

• The political and economic factors that affect stability of regional market groups

• The NIC growth factors and their role in economic development

Developing markets are experiencing rapid industrialization, growing industrial and consumer markets, and new opportunities for foreign investment. Consider the following illustration: In China, it is just a few shopping days before the advent of the Year of the Ox, and the aisles at the local Wal-Mart Supercenter are jammed with bargain hunters pushing carts loaded high with food, kitchen appliances, and clothing. It could be the preholiday shopping rush in any Wal-Mart in Middle America, but the shoppers here are China’s nouveau riche. Superstores have proven popular with Chinese consumers, who devote a large part of their spending to food and daily necessities. Wal-Mart has been able to tap into the Chinese sense of social status by offering membership cards that confer not only eligibility for special discounts but social status as well.

Alongside Campbell’s soup and Bounty paper towels are racks of dried fish and preserved plums. One shelf is stacked high with multiple brands of congee, a popular southern Chinese breakfast dish, and another has nam yue peanuts and packets of bamboo shoots. In the liquor section in the back of the store is three-snake rice wine, complete with the dead serpents’ bodies coiled together in the potent liquid. About 95 percent of what Wal-Mart sells in China is sourced locally. Gone are the efforts to sell big extension ladders or a year’s supply of soy sauce to customers living in tiny apartments.

At present Wal-Mart operates 2,980 units in thirteen foreign countries, including almost 200 in China. Revenues and profits are growing nicely for its international operations, and overseas expansion is set to continue particularly in China since its entry into the World Trade Organization. As one executive commented, “It boggles the mind to think if everybody washed their hair every day, how much shampoo you would sell [in China].”

The Chinese market can be difficult to tap and may not be profitable for many years for many companies. Most foreign retailers are in a learning mode about the ways and tastes of Asia, which are very different from those on Main Street U.S.A. For example, Pricesmart designed its Beijing store with two huge loading docks to accommodate full-sized diesel trucks in anticipation of the big deliveries needed to keep shelves well packed. What the company found was Chinese distributors arriving with goods in car trunks, on three-wheel pedicabs, or strapped to the backs of bicycles.

Procter & Gamble offered powdered Tide detergent in large quantities, but China’s oppressive summer humidity turned it into unwieldy clumps. Stocking large quantities of paper towels and disposable diapers didn’t work well either—most customers didn’t know what a paper towel was, and disposable diapers were too expensive a luxury for most. Package sizes also posed a problem—small Chinese apartments could not handle the large American-sized packages.

How do you sell $75 jeans or $150 wireless phones in a country where the per capita gross domestic product is only a couple of thousand dollars a year? Marketing researchers have found that extended families are showering their money on the kids, a common form of conspicuous consumption in the developing world. Even in China, the spending power of youth is nothing to discount. Studies have shown that the average 7- to 12-year-old in a large city has $182 a year in spending money—admittedly less than the $377 in France or $493 in the United States, but still a significant amount considering the huge population.

Sources: Keith B. Richburg, “Attention Shenzen Shoppers! U.S. Retail Giants Are Moving into China, and Finding the Learning Curve Formidable,” Washington Post, February 12, 1997; David Barboza, “The Bold Struggle for China’s Belly,” The New York Times, March 6, 2003, p. C1; http://www.walmartstores.com, 2008.

Not many years ago, large parts of the developing world were hostile to foreign investment and imposed severe regulatory barriers to foreign trade.¹ But few nations are content with the economic status quo; now, more than ever, they seek economic growth, improved standards of living, and an opportunity for the good life most people want as part of the global consumer world.² China and other emerging markets throughout the world will account for 75 percent of the world’s total growth in the next two decades and beyond, according to U.S. Department of Commerce estimates. The transition from socialist to market-driven economies, the liberalization of trade and investment policies in developing countries, the transfer of public-sector enterprises to the private sector, and the rapid development of regional market alliances are changing the way countries will trade and prosper in the 21st century.

The distribution of Coca-Cola is often one of the first signs of a country transforming from a command economy to one of free enterprise. Here the cyclo driver transports a promotional refrigerator in Ho Chi Minh City (formerly Saigon), Vietnam. (© Hoang Dinh Nam/AFP/Getty Images)

China, South Korea, Poland, Argentina, Brazil, Mexico, Turkey, India, and Vietnam³ are some of the countries undergoing impressive changes in their economies and emerging as vast markets. These and other countries have an ever-expanding and changing demand for goods and services. As countries prosper and their people are exposed to new ideas and behavior patterns via global communications networks, old stereotypes, traditions, and habits are cast aside or tempered, and new patterns of consumer behavior emerge. Luxury cars in China;⁴ Avon cosmetics in South Korea; Wal-Mart discount stores in Argentina, Brazil, Mexico, China, and Thailand; McDonald’s beefless Big Macs in India; Whirlpool washers and refrigerators in eastern Europe; Sara Lee food products in Indonesia; and Amway products in the Czech Republic represent opportunities in emerging markets.

A pattern of economic growth and global trade that will extend well into the 21st century appears to be emerging. It consists of three multinational market regions that comprise major trading blocs: Europe, Asia, and the Americas. Within each trading bloc are fully industrialized countries, as typified by Germany, Japan, and the United States; rapidly industrializing countries such as Mexico, Poland, and South Korea that are close on the heels of the fully industrialized; and other countries that are achieving economic development but at more modest rates. Outside the triad of Europe, Asia, and the Americas are others at different levels of development striving to emulate their more prosperous neighbors. Indonesia, Malaysia, Thailand, and the Philippines are beginning to chase the leaders’ tails, though from much lower levels of income. All four groups are creating enormous global markets. This chapter and the next explore the emerging markets and the multinational market regions and market groups that comprise the global trading blocs of the future.