A nation’s size, per-capital income, and stage of economic development determine its prospects as a host for international business expansion. Nations with low per-capital incomes may be poor markets for expensive industrial machinery but good ones for agricultural hand tools. These nations cannot afford the technical equipment that powers an industrialized society. Wealthier countries may offer prime markets for many U.S. industries, particularly those producing consumer goods and services and advanced industrial products.
In India, for example, the median annual household income is only $480. Economic reforms have improved the country’s standard of living somewhat, but most Indians have very few Western conveniences. Only 2 percent own cars, 4 percent have running hot water, and 7 percent have phones. Color television and refrigerator ownership run a bit higher at 12 percent.
Successful marketing in India requires an understanding of how the economy affects Indian consumers. Both rich and poor Indians practice frugal buying habits and spend as little as possible at one time. They prefer small packages with low prices, even though larger packages may offer more economical purchases. Even the wealthy are price-conscious consumers. Nestlé S.A. improved its market penetration in India by reducing package sizes and then pricing more than half of its food products under 25 rupees (about 70 cents). For example, sales of Maggi instant noodles tripled after Nestlé reduced the price from 19 cents to 14 cents a package. Recycling, a way of life for many Indians, is another issue U.S. marketers must keep in mind before entering the Indian marketplace. Although that country is the world’s largest market for razor blades, disposable razors sell very poorly because the idea of throwing them away mystifies typical Indians.20
Another important economic factor to consider when planning to enter a foreign market is a country’s infrastructure. Infrastructure refers to a nation’s communication systems (television, radio, print media, telecommunications), transportation networks (paved roads, railroads, airports), and energy facilities (power plants, gas and electric utilities). An inadequate infrastructure may constrain marketers’ plans to manufacture, promote, and distribute goods and services in a particular country.
People living in countries blessed by navigable waters often rely on them as inexpensive, relatively efficient alternatives to highways, rail lines, and air transportation. As Figure 3.5 shows, Thai farmers use their nation’s myriad rivers to transport their crops. Their boats even become retail outlets in so-called floating market like this one located outside Bangkok.
Marketers expect developing economies to have substandard utility and communications networks. China encountered numerous problems in establishing a 21st-century communications industry infrastructure. The Chinese government’s answer was a huge investment in wireless technology. By 2001, over 60 million Chinese had their own cell phones, and the number will grow to 200 million subscribers by 2010. Unlike the high phone rates paid by their Japanese neighbors, Chinese consumers pay only a nickel a minute, one of the cheapest rates in the world.
Changes in exchange rates can also complicate international marketing. An exchange rate is the price of one nation’s currency in terms of another country’s currency. Fluctuations in exchange rates can make a nation’s currency more valuable or less valuable compared to those of other nations. In Europe, a new currency was introduced—the euro—to eliminate problems associated with exchange rates. Before the euro, prices for the same goods and services varied between 30 percent and 100 percent among European nations. In the first year of the euro, price differences fell to only 28 percent and continue to drop as the euro becomes the dominant currency in Europe. ByJuly 1,2002, national currencies will no longer be legal tender for countries in the European Monetary Union.
Russian and many eastern European currencies are considered soft currencies that cannot be readily converted into such hard currencies as the dollar, euro, or Japanese yen. Rather than taking payment in soft currencies, international marketers doing business there may resort to barter, accepting such commodities as oil, timber, or even alcoholic beverages as payment for exports. Needless to say, U.S. currency is a hot commodity; in fact, demand for American dollars is higher than ever. About 60 percent of the new $100 bills printed last year were sent directly overseas. When the Berlin Wall fell in 1989, signifving the end of the cold war, U.s. dollars flooded former Soviet-bloc countries. In response, many regions, including much of Africa, Asia, and the Middle East, have placed restrictions on currency trading.2