Global Economic Environment and Marketing
Order Instructions:
Global Economic Environment and Marketing
A. Project question
A major multinational corporation has appointed you as an economic advisor. You are requested to compile a report regarding the macroeconomic environment in two countries where the firm operates and explain how it might affect the company’s economic activity.
B. Project specifications
1. You may choose to focus your analysis on any existing multinational firm.
2. The two countries must be chosen from section C below as follows: one country from List 1 and one country from List 2.
3. Your report must include:
a. A brief description of the company.
b. A comparative analysis of all major macroeconomic indicators (see section D below, excluding 5 and 7) for the two countries and their overall impact on firm’s economic activity.
c. An analysis of the market structure in which your company operates for the two countries.
d. An analysis of the monetary and fiscal policy for the two countries andtheir impact on the firm’s economic activity.
e. An analysis of the foreign trade policy (international trade agreements)for the two countries and its impact on firm’s economic activity.
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C. Country Lists
List 1 List 2
Australia Brazil
Austria China
Canada India
Italy Mexico
Sweden Russia
D. Macroeconomic indicators1 to be analysed (the last available 10 years):
1. GDP growth rate
2. GDP per capita at constant prices
3. Inflation rate
4. Unemployment rate
5. Interest rates (Monetary Policy Rate)2
6. General government balances (% of GDP)
7. Balance of Payments (% of GDP)
8. Exchange rates (national currency/USD OR National Currency/Euro)3
1 We recommend that you use the IMF database to collect your data for most of these macroeconomic indicators.
2 Data available from the relevant Central Banks websites
3 ibid
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E. Project 1 Submission Guidelines
Length 2,500 words, +/- 10% (excluding tables, graphs, footnotes and references)
Presentation Arial 12 fonts, 1 ½ spacing, justified text
References A minimum of 20 references using Harvard Referencing
System (textbooks, official data and information sources)
F. Marking criteria and weights
CRITERIA WEIGHTS
Brief description of the company and analysis of the market structure in which the company operates for the two countries
20%
Data collection, comparative analysis of major macroeconomic indicators and impact on firm’s economic activity
25%
Analysis of the monetary, fiscal and foreign trade policy for the two countries and their impact on firm’s economic activity
40%
Report structure, presentation and references 15%
SAMPLE ANSWER
With the increasing globalization, it is important for a business organization to understand all the macroeconomic factors that may affect their business operations in different nations. Understanding the macroeconomic environment of the nation in which a business operates is important for the organization to develop marketing and business strategies that will work successfully. Marketing strategy should either be standardized or localized to suit the specific market in which a business operates. There are different factors that may affect how a business operates such as interest rates, inflation rates, GDP and the level of unemployment. This paper will provide a detailed analysis of the macroeconomic environment of Canada and India and how these factors might affect Wal-Mart economic activities in these two nations.
Wal-Mart Company Overview
Wal-Mart Company is an American Multinational retail store founded in the year 1962 by Sam Walton. The company runs a chain of warehouse stores and discount department stores in different countries. The company headquarters is in Bentonville, United States. Walmart was incorporated in the year 1969 and began selling its shares to the public in 1972. The company operates in three trade sections Wal-Mart US, Sam’s Club, and Wal-Mart Superstores. The company has over 11,000 outlets in 28 different nations.
The Fortune Global 500 rated Wal-Mart stores to be the world largest company in terms of revenue and similarly it is rated the biggest private employer in the globe having about 2.2 million workers. Wal-Mart marketing strategy is selling quality products at low prices to improve the lives of their clients and both the clients and the community to save money and live a better live.
Wal-Mart Stores Inc. supply diverse assortment of products, services and brands in the market. Some of the products the company offers include beverages, dry and wet grocery, food, clothes, electronic accessories, furniture, clothes among others. The corporation offers a great selection of high-quality merchandise, welcoming services under their “Everyday Low prices” strategy. The industry in which Wal-Mart Stores operate is the retailing industry. In the retailing industry, companies offer merchandise and products for sale at a fixed location such as a store, online, or by mail.
Comparative analysis of major macroeconomic indicators in Canada and India
Canada is positioned as the 11nth major in the globe in terms of Nominal GDP and the 14nth largest when it comes to Purchasing Power Parity economy in the globe. Canada is part of Group of Seven (G7) as well as the Organization for Economic Co-operation and Development (OECD) and is among the globe wealthiest countries (Nicoletta et al., 2010). The Canada is a developed economy chiefly controlled by the service, logging and oil industry. The company also tops in the seafood and fishing industry as well as entertainment and software industry.
On the other hand, India is positioned as the seventh in when using Nominal GDP and 14nth in relation to Purchasing Power Parity (PPP) (Ahluwalia, 2012). India is among the newly industrialized countries. It is a member of BRICS having an average growth rate of 7% for the last twenty years. India economy is rated among the fastest growing major economies in the world after China economy. India boasts of a young population, healthy savings and investment rates, low dependency ratio and high globalization rate. The primary source of revenue in India is the service sector. In fact, India is the major exporter of BPO services, software services, and other IT services followed by agricultural and industry sector.
GDP Growth Rate: This economic metric measure the rate at which the nation’s Gross Domestic Product over a period of one year. In Canada, the GDP annual Growth rate has increased by 1% in the second quarter of 2015 as compared to the previous year (IMF, 2015). Ranging from 1962 to 2015, the GDP annual growth rate in Canada averaged 3.24%. The GDP highest value was 8.80% attained in 1962 and a record of -3.98% in the year 1982. Statistics indicates that the wholesale trade dropped by 0.4% and the retail sector increased by 0.7%. This poses a mixed impact for Wal-Mart as it engages in both wholesale and retail trade. Therefore, Wal-Mart should concentrate more on the retail sector in Canada. The average GDP from 1998 to 2015 is 1.6% with an unsurpassed high of 5.30% in 2009 and a record low of -1.70% in at the beginning of 2009.
In India, the GDP annual growth rate has also increased but at a rate of 2.06 in the second quarter of 2015 as compared to the previous year. The retail industry has been enjoying a high growth rate in India paltry because of the high population consisting of young people and working population (Mohan & Chitradevi, 2014). Therefore, India is a favorable market for Wal-Mart as most of its operations are in the retail sector of the economy.
GDP per capita at constant prices: This metric refers to the measure of the total output of a nation computed by dividing the Gross Domestic Product (GDP) with the sum of all the people in the country. This metric is paramount for indicating the relative performance of different countries. It is imperative to note that an increase in per capita GDP indicates positive economic growth.
According to International Monetary Fund, the value of GDP per capita at constant prices was 38184.62 Canadian Dollar in the year 2009(IMF, 2015). Canada GDP per capita income has been on the rise since 2009. Projections indicate that the GDP per capita income is expected to be 41765.85 by the end of 2015 which is an improvement by about 6,000 Canadian Dollar. This positive outlook indicates an increase in economic growth in real terms and, therefore, may present more opportunities for Wal-Mart because the people purchasing power has increased.
On the other hand, International Monetary Fund reported the GDP per capita at constant prices in India to be at 31464.97 Indian Rupee in the year 2009. International Monetary Fund project that this value will increase to 46723.21 by the end of 2015. This indicates that Indian economy is growing at a faster rate as compared to Canada. Therefore, Wal-Mart should concentrate on increasing its operation activities in India as compared to Canada.
Inflation Rate: inflation refers to the continued and persistent increase in the common level of prices of commodities and services in an economy. Inflation is felt greatly in the retail industry because an increase in inflation results in the decrease in purchasing power of the currency circulating in the economy. The inflation rate in Canada has been increasing gradually over the years. The consumer prices in Canada increase by 1.3% in the year that ended in August 2015. The inflation rate in Canada values at 3.19% in the period between 1915 and 2015. The highest inflation rate ever felt in 1920 which hit an unsurpassedhigh of 21.60% in 1920 and a record low of -17.80% in the year 1921 (Beers & Nadeau, 2014). This macroeconomic metric indicates that the cost of goods in Canada has been increasing over the years, and thus it is not favorable for Wal-Mart Supermarket. This trend is because of an increase in inflation rate results in the decrease in purchasing power of consumers.
The inflation rate increased by 3.66 percent year-on-year as at August 2015, a slight decrease from 3.69% increase in July this concurred with the market expectations. In fact, the inflation rate hit a record low this year in August; the current inflation rate is below the set target of the central bank that is 6%. This is a good indicator of a thriving economy and good news for the retail sector because decreasing inflation rate results in an increase in the purchasing power of the consumers.
From the above comparison, it is evident that India is favorable as compared to Canada in terms of the inflation rate. The inflation rate in Canada is on the rise while the inflation rate in India has been dropping significantly. Therefore, Wal-Mart should expand its operation in India to take advantage of the decreasing inflation rate and increasing the purchasing power of consumers living in India.
Unemployment rate: Unemployment rate also has an impact on the economy performance especially on the retail sector. Unemployment rate determines the consumption level in a country and marketers should understand the trends in their market before making an investment decision. The rate of unemployment in Canada increased from 6.80% to 7% between August and July 2015. The unemployment rate had an average of 7.73% over the last ten years with an unsurpassed value of 13.10% in December 1982 and a record low value of 2.90% in June 1966. This indicates that the changes in the level of unemployment is fairly balanced and does not fluctuate.
Consequently, the rate of unemployment in India has been declining over the last five years. The unemployment rate in India declined from 5.20% in 2012 to 4.90% in 2013 (Mohan & Chitradevi, 2014). The unemployment rate in India averaged 7.32 percent in the last 30 years with an unsurpassed value of 9.40% in 2009 and a record low of 4.90% in the year 2013. This trend indicates that the Indian economy can create employment opportunities annually to absorb the vibrant new workforce to the economy. Therefore, the purchasing power of individuals in India is high. As such, Wal-Mart should utilize these investment opportunities and invest in the Indian market as compared to the Canadian market.
Interest Rates: Interest rates refer to the cost of using an asset. That is the sum charged by a lender to a borrower for the exploitation of an asset. An interest rate is often expressed as a percentage of the principal value (Mohan & Chitradevi, 2014). Interest rates have different effects that ultimately reflect in consumption and investment in an economy. High-interest rates increase the cost of borrowing and thus may limit the expansion of Wal-Mart through the use of credit facilities. On the same note, the interest rate has an impact on consumption, an increase in interest rates result in a fall in consumption. Therefore, it may affect the volume sold by Wal-Mart in the Respective economies.
In Canada, the general interest rate is at 0.5% as at September 2015. This value is lower than the average interest rate of Canada which is 5.98%. This indicates that the cost of borrowing is low, and Wal-Mart can utilize the resource to expand their operations in the Canadian market. The consumption level is also high, and this may result in increasing demand for Wal-Mart goods and services in Canada.
On the other hand, the interest rate in India has been decreasing over the years the current interest rate is 6.75% as at September 2015.This value is slightly higher than the value of the average interest rate that is 6.71 in the period between 200 and 2009. The slight increase may be felt in the decrease in consumption level as the cost of borrowing has slightly increased and may result in fall in the general consumption in the Indian economy.
In terms of the General Government Structural Balance, the potential GDP in Canada was reported to be -2.04% of the potential GDP in the year 2009 (Beers & Nadeau, 2014). The International Monetary Fund projects that the General Government Structural Balance of the potential GDP to be 0.05%. The value of the general government structural balance comprises of asset prices movements, temporary financial sector, and expenditure items. The metric evaluates the government cyclically adjusted balance from nonstructural elements beyond the economic scope. On the other hand, the Indian government experienced a budget deficit of 4.50% of the GDP indicating that the government has to allocate more money for financing government activities in the country (Mohan & Chitradevi, 2014).
The Balance of Payments: refers to a financial metric that is sued to summarize a nation’s transaction with other nations. The balance of payment looks into the transactions between a nation’s residents and non-residents in terms of transfer of goods, services, income and financial claims. In Canada, the have a current account of -17398 CAD Million in the second quarter of 2015. This indicates that Canada is experiencing a current account deficit. However, the average value of the current account was valued at -1808.71 indicating that the nation current account has been improving. Canada international policies encourage foreign trade and foreign direct investment of multinationals in their region. These policies may prove beneficial, and Wal-Mart should seize the opportunity to invest in Canada.
Exchange rates also have effects on firms that export goods and import raw materials. A devaluation of currency is beneficial to multinational firms as it will reduce the exporting rates while an appreciation in exchange rates increases the cost of export. The Canadian Dollar has been trading at 1.30654 against the US Dollar. This indicates a moderate gain against the euro as the industrial production gained as a result of QE program. On the other hand, the Indian Rupee trades at 65.049 against the US Dollar indicating that the value of Canadian Dollar is higher compared to the Indian Rupee.
Recommendations and Conclusion
From the extensive research on the macroeconomic indicators in Canada and India, it is worth noting that investing in India is more profitable as compared to Canada. This notion is because India is categorized as one of the newly industrialized countries and one of the world’s fastest economies (Mohan & Chitradevi, 2014). Macroeconomic metrics indicates a moderate long-term economic growth prospective because of the Indian young population, low dependency ratio, decreasing interest rates and a positive GDP growth rate as compared to Canada.
The unemployment rate has been declining in India indicating an increase in Per Capita income. This trend is good as it will result in a rise in the general level of consumption as people purchasing power will increase. This is contrary to the Canadian unemployment rate that increasing over the years. The population is also low and thus the market share in the retail industry is lower as compared to India.
Therefore, Wal-Mart should focus on increasing its business operations to take advantage of the positive economic outlook for the Indian economy. The company has a potential of increasing its market share because of the high population in India. This population will provide market for the Wal-Mart goods and services and on the same note provide cheap labor and hence cut down cost of production.
References
IMF. (2015, April). Canada: Financial Sector Assessment Program-Crisis Management and Bank Resolution Framework-Technical Note. Retrieved from http://www.imf.org/external/pubs/ft/reo/2015/apd/eng/pdf/areo0415.pdf
Nicoletta Batini, Thomas Dowling, Grace Bin Li, Evridiki Tsounta (all WHD), & John Kiff (MCM). (2010, November 24). Selected Issues Paper; IMF Paper Issue. Retrieved from http://www.imf.org/external/pubs/ft/scr/2010/cr10378.pdf
Ahluwalia, I. J. (2012). India’s economic reforms and development: Essays for Manmohan Singh. Oxford University Press.
Burnett, K., & Newman, L. (2014). 2 Urban policy regimes and the political economy of street food in Canada and the United States. Street Food: Culture, Economy, Health and Governance, 46.
Beers, D., & Nadeau, J. S. (2014). Database of Sovereign Defaults, 2015 (Revised May 2015). Bank of Canada.
Mohan, C., & Chitradevi, N. (2014). IMPACT OF MACRO ECONOMIC FACTORS ON BANKING INDEX (CNX BANK) IN INDIA. International Journal of Trade & Global Business Perspectives, 3(1), 722.
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