International Marketing

Environment Analysis UNIT 6 ECONOMIC AND NATURAL

ENVIRONMENT
Learning Outcomes
After going through this unit, you should be able to:
 discuss the significance of the natural and economic environments in
international markets.
 describe how the economic environment affects decision-making.
 discuss the function and significance of the international financial system.
 explain various trade blocks.
 discuss about economic development and sustainability.

Structure

6.1 Introduction
6.2 Elements of the Economic Environment
6.3 Impact of Elements of Economic Environment on Business Decisions
6.4 Regional Trade Blocks
6.5 International Financial System
6.6 Natural Environment
6.7 Economic and Sustainable Environment
6.8 Economic Development and Sustainability
6.9 Summary
6.10 Self-Assessment Questions
6.11 Further Readings

6.1 INTRODUCTION
Understanding economic developments and how they affect the marketing strategy is
crucial for the international marketer. In terms of the global trading infrastructure, this
understanding is important. Examples of the infrastructure include global institutions
and trade agreements that are created to support national or market-level trade as well
as regional and international trade integration. The economic policies of nations and
the way in which a specific market evolves are matters that businesses need to be
aware of. By doing so, companies may determine whether they can profitably meet
market demand and compete with other players. Equally significant is the natural
environment, which has considerable influence on the functioning of a business. This
unit will discuss the important economic and natural environment factors.

6.2 ELEMENTS OF THE ECONOMIC

ENVIRONMENT
The “economic environment” of a nation is made up of a wide range of internal and
102 external factors that influence consumer and business behaviour. Whenever a firm moves
abroad for international business, it studies the various economic indicators of the host Economic and
Natural Environment
country. These indicators enable us to determine:
 Size of demand for its product
 Cost of production and net earnings
 Whether the earnings can be smoothly transferred to the home country
The size of demand depends upon the level of income and its distribution, the ability to
consume, and the rate of inflation. The cost of production depends upon the availability
of human and physical resources, infrastructure, monetary, and fiscal policies. The
question of whether earnings can be transferred to the home country raises concerns
about the smooth diversion of income and profit, which is dependent on the strength of
the external sector.
The major economic indicators are:
 GDP
 Level of income and its distribution
 Unemployment
 Inflation
 Consumption Pattern
 Availability of technical and managerial resources
 Availability of Infrastructure
 Government Policies: Fiscal, Monetary and Industrial Policies
 Strength of external sector
 Reforms in the Banking Sector
 Role of the Public and Private Sector
 Balance of Trade and Balance of Payment
 Consumer Confidence
These elements greatly impact a nation’s economic operations through determining
consumer behaviour and financial flows.
Let us discuss some important macro-economic variables.
According to World Bank data, there are 214 countries in the world with a population
of more than 30,000. The question of “To which of these nations should a firm expand?”
is a common one that an international marketer must answer. The availability of access
to factors of production (such as labour, capital, raw materials, etc.) and the demand
environment (size of the market, market growth rate, and so on) are crucial aspects
that would impact an international marketer. Let us explain how the world’s nations are
classified in order to comprehend the economic environment.
The countries of the world can be classified based on different factors, namely income,
region, economic system, etc., as shown in Figure 6.1.
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International Marketing Figure 6.1: Classification of Countries
Environment Analysis

A) Classification based on Income

Countries are often categorised based on income using their GNP or GDP per capita.
Gross domestic product is referred to as GDP and the term “gross national product”
as GNP. The gross national product (GNP) is the sum of all final goods and services
produced in a country in a given year plus all income received by its residents (including
those located abroad). It excludes the earnings of non-residents who are present in a
specific nation. GDP encompasses the entire worth of economic activity that takes
place within a nation’s boundaries, whether or not that activity is the outcome of domestic
or foreign investment. Gross National Income (GNI) per capita is the amount of
economic activity per citizen of a country per [Link] 6.1 shows the classification of
economies based on World Bank Report, 2021.
Table 6.1: GNI per capita, 2021

Country Classification Per capita Income

Low-income US $ < 1,046
Lower-middle income US $ 1,046 – 4,095
Upper-middle income US $ 4,096 -12,695
High income US $ > 12,695
Source: [Link]/about/country-classifications
It should be noted that since the World Bank’s classification is changed annually on
July 1st, the data is always valid until June 30th, regardless of changes in the countries’
GNIs.
B) Classification Based on Region
The major regions are: East Asia and the Pacific, Europe and Central Asia, Latin
America and the Caribbean, the Middle East and North Africa, South Asia, and Sub-
Saharan Africa. For international marketing firms, whose operations are organised
along geographic. Usually, this classification reflects only low- and middle-income
economies, which are commonly referred to as “emerging economies.” The classification
based on geographic region normally reflects the development status of such economies.
C) Classification Based on Economic System
An economic system is a system of production, distribution, and consumption that can
be categorised as either “free” or “repressed” along a continuum. Table 6.2 provides a
breakdown of the current situation.
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 Table 6.2: Countries classified on the basis of Economic System Economic and
Natural Environment

Source: Compiled from Heritage foundation calculations from 2103

Index of Economic Freedom.
D) Classification based on types of economies
There are basically four types of economies:
 Market economy
 Command economy
 Traditional economy
 Mixed economy
Market Economy: When economic resources are owned and managed by the private
sector, an economy is said to be in a “market economy.” They are not owned by the
government or the public sector, such as say the governments of the United States of
America and the United Kingdom.
Command Economy: In this case, the government or public sector owns and controls
the economic resources. In countries like China, the USSR before it split into Russia,
and others, the production and processing of goods are decided upon by the central
government based on a central plan.
Traditional Economy: Here, like in most African nations, economic decisions are
founded on long-held traditions and convictions that have been handed down through
the generations.
Mixed Economy: The majority of nations in the globe combine two or more of the
three aforementioned economic models. These nations, like France and India, exhibit
features of both private and public sector ownership and management.
Following are some of the main macroeconomic problems that occur when
macroeconomic objectives are not successfully attained:
 Unemployment
 Inflation
 Business Cycle
 Stagnant Growth
 Government Policies: Fiscal, Monetary and Industrial Policies
Unemployment
A country’s high unemployment rate is a lagging indicator, meaning that its economy
is not making the best use of its resources. Additionally, it would have a detrimental 105
International Marketing effect on people’s disposable income, which would cause demand to decline. It has
Environment Analysis
a major impact on an economy’s business world. In the Indian economy as it is now,
this phenomenon is distinctly perceptible. The people experience other difficulties,
both financially and psychologically, in addition to losing their income. Government
costs go beyond just paying for benefits; they also include lost worker productivity,
which lowers the GDP and ultimately causes problems with the economy and poverty.
It will result in slower GDP growth and less money collected in taxes for the
government.
Inflation
Consumers’ real income determines their ability to make purchases. An overstated
income figure results from inflation. People’s purchasing power is higher if inflation is
lower. Exports from the host nation with a high rate of inflation to a nation with a lower
rate of inflation cause issues for the manufacturer. Furthermore, those with fixed salaries
are the most negatively impacted by inflation as compared to businessmen. As a result,
most people are unable to buy basic goods and services. Pensions and savings lose
value as a result of inflation. Along with inflation, there are a lot of other related factors
that [Link] related supporting factors are also unavoidable. The effects of inflation
are felt in a variety of ways, including changes in interest rates, production costs,
competitive pricing, industrial growth rates, and other factors. As the cost of labour
and raw materials rises and profit margins contract, small enterprises and cottage
industries are also impacted.
Business Cycle
Inflation and unemployment both contribute to business cycle instability. The business
cycle is impacted in some manner by each of these macroeconomic concerns. The
contraction and expansion phases of the business cycle are affected, leading to unstable
conditions.
Stagnant Growth
Stagnant growth is a term used to describe growth that has slowed down during a
specific stage of the business cycle. When aggregate production is not increasing at the
desired rate, this problem occurs. In certain cases, it tends to decline as well.
Government Policies: Fiscal, Monetary and Industrial Policies
The economic environment can be significantly influenced by government policies. This
may involve monetary or fiscal policy. A drop in interest rates on bank loans, which
increases consumer demand for loans, is an illustration of monetary policy. Fiscal policy
would include a decision to lower income taxes by the government. Both of these
strategies aim to progressively raise people’s disposable income and motivate them to
spend more, which will stimulate economic activity. Government policies have the
potential to affect the inflation rate, taxes, and interest rates, all of which tend to raise
the cost of borrowing. If the interest rate is higher, consumers will spend less, but if it is
lower, investors can be attracted. A government’s active response to a nation’s economic
situation is typically done to protect the financial interests of significant stakeholders.
The host nation’s corporate income tax, excise tax, and import tariffs do have an
impact on global trade and investment. If taxes and excise fees are high, doing business
106 there is discouraged since it yields a smaller net profit.
Activity-1 Economic and
Natural Environment
How does the elements of economic environment influence the marketing programme?
Discuss with the help of examples.
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6.3 IMPACT OF ELEMENTS OF ECONOMIC

ENVIRONMENT ON BUSINESS DECISIONS
The present-day economic environment of business is a complex phenomenon. The
business sector has economic relations with the government, the capital market, the
household sector, and the foreign sector. These different sectors influence the trends
and structure of the economy. The form and functioning of the economy vary from
country to country. The design and structure of an economic system are conditioned
by socio-political arrangements. Such arrangements are relevant from the standpoint
of macroeconomic decision-making. For example, in a democratic setting, people
exercise a direct or indirect influence, through the system of casting votes, on the
nature of the decisions taken by the government. In a capitalist society, the private
sector, induced by the profit motive and led by the free market, takes the major economic
decisions of investment, production, and distribution. All modern economies, whether
capitalist, socialized, communist, or mixed, have certain fundamental economic problems
to deal with. In every economy, including the so-called “affluent society,” some or
many resources are scarce. The process of decision-making differs depending on how
these problems are solved in different economies. This is what constitutes the functioning
of the economy, or the nature of the economic environment. Certain points can be
made about the organisation and functioning of modern economies:
i) In most economies, both “free market mechanisms” and “centralised planning”
exist in different degrees even today. By “free market mechanism” or “price
mechanism,” we mean a free play of the market forces of demand and supply
to determine an equilibrium solution to the allocation problem. Market
mechanisms determine commodity prices, factor prices, and income
distribution. By “planning,” we mean a programme of action based upon
consistency and the feasibility of attaining a set of targets in view of a set of
objectives through a set of instruments. In the present-day world around us,
planning is combined with free pricing to arrive at macro-economic decisions
yielding “the maximum good to the maximum number.” Thus, the economy in
which a business firm operates today is not an exclusively free economy that
makes indiscriminate use of prices and markets. Rather, it is directed by a
system of planning, control, regulation, and coordination.
ii) In most economies, positive intervention by the government in day-to-day
economic affairs has existed for several decades. Planning is a form of
government intervention. Besides this, the government can also intervene
through a system of controls and regulations. It is the intervening role of the
government that has made most business firms socially responsible. However,
intervention by the government is now on the agenda. Many economies have 107
International Marketing relaxed regulations and controls through economic reforms and are allowing
Environment Analysis
a free play of market forces.
iii) Modern economies are not “closed” and “open”; they are actively engaged in
international trade and cooperation. So, the international transmission effect
today is stronger than ever before. Though there are disparities in the levels of
income and standards of living over space and time, there is a conscious
effort to maintain steady growth and also to accelerate growth in
underdeveloped countries. This idea has given new dimensions to issues like
the role of multinational corporations, the ecological balance, the recycling of
petrodollars, and the transfer of technology. To maintain their dynamism,
economies are determined to advance science and technology while also
balancing the environment and the economy, and this will serve as a unifying
force for the global economic order. No management can ignore the functioning
of markets, the objectives of national planning, the policies of the government
or their social responsibilities, the rate, pattern, and structure of economic
changes, or the forms of international cooperation. Progressive management
must maintain constant awareness of the magnitude and direction of changes
in the national and international economic environments.

6.4 REGIONAL TRADE BLOCKS

A regional trading block, also referred to as a “trade bloc,” is a group of nations that
are located in a certain geographical region. They are a driving factor behind economic
integration that has a growing impact on global trade. The different types of trading
blocks include:
 Preferential Trading Arrangements (PTAs)
 Free Trade Agreement (FTA)
 Customs Markets
 Common Markets
 Economic Union
 Monetary Union
 Political Union
Preferential Trading Arrangements (PTAs): This is a kind of trading block that
gives preferential access to certain products from the member countries. It can be
established through trade facts and is the first stage of economic integration.
Free Trade Area or Agreement (FTA): In a FTA, tariffs are removed inside the
arrangement, but members keep their own external tariffs against non-member countries.
Examples of FTAs are the Canada-US FTA and the NAFTA (North American Free
Trade Agreement).
Customs Union (CU): In a customs union, tariffs are removed inside the union and all
member countries harmonise their tariffs against non-members. Thus, a CU has a
common external tariff (CET) against non-members.
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Common Market: A common market is a customs union with the addition that non- Economic and
Natural Environment
tariff barriers (NTBs) restricting internal factors’ (labour and capital) mobility within
the arrangement are also removed. The purpose of the European Commission (EC)
1992 process was to remove internal barriers to trade within the European Commission,
creating a common market. The Central American Common Market, consisting of
Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua, is another case in
point.
Economic Union: An economic union is a common market in which the member
countries’ economic policies are [Link] example, in an economic union,
countries normally have a common monetary and fiscal policy and a common currency.
Monetary Union: When two or more states share the same currency, this is referred
to as a currency union. It is to be noted here that apart from having the same currency,
the two states may not necessarily have any further integration, e.g., economic and
monetary union.
Political Union: Political union is the replacement of an economic union by full economic
and political integration, i.e., the members of the economic union agree to become one
country.
Let us now discuss some of the major trade blocks in the world.
North American Free Trade Agreement (NAFTA): The goal of NAFTA, the world’s
largest free trade area, is to eliminate barriers to trade and investment between the
three countries, the U.S.A., Canada and Mexico. NAFTA commits all parties to end
restrictions on NAFTA–members. Foreign investors are provided a high level of
protection of intellectual property, liberalized trade in services and there are agreements
on environmental and labour standards.
European Union (EU)
European Union (EU) is made up of 27 European nations and oversees shared
economic, social, and security policies. The Maastricht Treaty, which went into effect
on November 1, 1993, is what established the EU. By establishing a single currency
(the euro), an united foreign and security policy, common citizenship rights, and by
fostering cooperation in the fields of immigration, asylum, and judicial affairs, the treaty
was intended to further the political and economic unity of Europe. The EU began a
significant expansion into central and eastern Europe in the early twenty-first century
after being limited to western Europe at first. In 2020, the United Kingdom, one of the
EU’s original members, formally resigned.
Association of South East Asian Nations (ASEAN): It was formed in 1967 but
started making progress only in 1970s. Its members are Brunei, Indonesia, Laos,
Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. It has started
through partial liberalization of trade in select range of products. The other important
step was to identify several regional projects, which would cater to the requirements of
all the member countries. Each country will have one regional project. ASEAN has
developed a common effective preferential tariffs (CEPT) plan to reduce tariffs
systematically for manufactured and processed products. ASEAN has also decided to
invite both China and India as ‘guest country’.
Asia-Pacific Economic Cooperation (APEC): Formed in 1989 as an informal dialogue
group with limited participation, APEC has become a forum for negotiations to achieve 109
International Marketing the goal of free trade and investment in the Asia-Pacific region. APEC has 18 members
Environment Analysis
– Australia, Brunei, Canada, Chile, China, Hong Kong, Indonesia, Japan, South Korea,
Malaysia, Mexico, New Zealand, Papua New Guinea, Philippines, Singapore, Taiwan
Thailand and USA. In Indonesia in 1994, the APEC leaders agreed via their Bogor
declaration to achieve completely free trade and investment by 2010 for the industrial
countries and by 2020 for the rest. This is potentially the most sweeping trade agreement
in history, committing half the world economy to eliminate all barriers between
themselves.
SAPTA: South Asian Preferential Trading Arrangement (SAPTA), is an intra-regional
trade agreement of the SAARC countries, India, Pakistan, Sri Lanka, Bangladesh,
Nepal, Bhutan, Afghanistan and the Maldives.
Andean Community: The Andean Community is a trade block comprising the South
American countries of Bolivia, Colombia, Ecuador and Peru. The trade block was
called the Andean Pact until 1996.
SACU: The Southern African Customs Union (SACU) consists of five Member States,
Botswana, Lesotho, Namibia, South Africa and Swaziland. It was established through
the Customs Union Agreement of 1910.
GCC Countries: Gulf cooperation council is a trade block involving six Arab states of
the Persian Gulf, comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the
United Arab Emirates.
Activity 2
India’s first FTA was signed with Sri Lanka. Evaluate some of the gains that both the
countries stand to gain from this FTA
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6.5 INTERNATIONAL FINANCIAL SYSTEM

Given the extent of international integration that has been established between nations,
the financial architecture of the world today is complicated. Therefore, trading partners
may have issues as a result of a country’s policies. The upkeep of stability is the primary
function of the international financial system. Due to lack of foreign currency, countries
may have problems and stop making payments. This might have an impact on the
lenders and have repercussions around the world. Therefore, a system of supplying
the money with the condition that suitable policies will be pursued to address the
imbalances needs to be put in place to prevent such fluctuations. Let us explore the
institutions in charge of safeguarding the stability of the international financial itsystem.
This section will cover the IMF and the World Bank.

6.5.1 International Monetary Fund (IMF)

With members from about 190 nations, the IMF is an independent international
organisation. Members contribute to its quota, and in return, the IMF offers help during
a balance-of-payments crisis (BoP). In addition, the IMF is responsible for providing
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training, policy advice, technical support to help countries run their economies more Economic and
Natural Environment
effectively, and other related services. The Bretton Woods Conference in 1944 saw
the adoption of the articles of agreement, which led to the creation of the IMF on
December 27, 1945. According to the articles of agreement that established it, the
IMF’s mandate is as follows:
 To encourage financial cooperation among the members and to offer a
discussion forum for upholding friendly relations
 To facilitate the process so that member countries’ productive resources grow,
global trade is encouraged, employment rates rise, and real incomes expand.
 To promote stable and orderly exchange rates and make sure that members
donot engage in competitive devaluation
 To facilitate the member nations in creating a payment system that will facilitate
multilateral transactions and eliminate trade-impeding foreign exchange
regulations.
 To develop into a means for members to use its resources during times of
financial difficulty, enabling them to avoid turning to practises that are more
harmful.
 To minimize the length and intensity of disequilibrium in the BoP in order to
lessen the suffering experienced by member nations.
Functions of IMF
The following functions are carried out by the IMF, which range from monitoring member
nations to providing advice on raising external financing.
1. The IMF has the authority and legal support to keep an eye on the economics of
its member nations to see if they are in line with its goals.
2. The IMF’s main duty is to offer direct funding to its members in order to assist
them in overcoming short-term BoP challenges and to see that corrective actions
are carried out in order to achieve a smooth adjustment to the disequilibrium.
3. The IMF assists low-income nations by connecting them to foreign donor
organisations and funding sources. In addition, the IMF is concerned about the
high levels of debt in these nations and debt relief.
4. The IMF continuously assesses the economic health of its members, which enables
financial markets and donors to accurately assess the economies. This facilitates
their ability to obtain external funding.
5. In order to prevent erratic exchange rate movements, the institution also functions
as a forum for discussions and global cooperation among member nations.
6. If necessary, provide further foreign liquidity by issuing Special Drawing Rights
(SDRs). SDRs are not claims against the institution; rather, they are the units of
account in which the Fund conducts business with its members. SDRs are
convertible into other currencies.
7. The IMF also works to strengthen the skills of its members, particularly those
from developing nations, in fields in which it is an expert. These aids the members
in developing economic strategies without making costly errors.
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International Marketing 8. In order to better serve its members, the IMF carries out research in areas where
Environment Analysis
it often offers guidance. It is also a significant source of international data on financial,
monetary, and economic factors that its member countries, academics, and industry
professionals can use.

6.5.2 The World Bank

World bank was established following the Bretton Woods Conference. The institution’s
main responsibility was thought to be rebuilding the severely damaged post-World
War II nations. It performs dual roles of an investment bank and a financial institution
for international development. The capital markets serve as the bank’s primary source
of finance. Its additional financial sources include the sale of bonds and grants from its
constituents.
Role of World Bank
Helping nations overcome debt: Because of the two oil price shocks in the 1980s,
several developing nations were on the verge of collapse. For these nations to resume
economic growth, the Bank turned to adjustment loans. Later, the emphasis switched
to reducing poverty by providing loans to nations who were struggling with it and fine-
tuning the adjustment lending to accomplish this goal.
Assistance to a Country: The bank’s mandate called for lending to specifically
designated projects for intervention. The bank participates in policy evaluations, offers
advice on policy creation, develops projects for which it seeks support, etc.
Provider of International Public Goods: The Bank is trusted to offer crucial guidance
on economic policies and the dangers associated with investing in particular nations in
general. The Bank’s public goods include enhancing democratic institutions, encouraging
private-sector collaboration, disseminating information pertinent to development, the
environment, and market failures, eradicating drug trafficking, controlling international
capital flows, addressing market imperfections, and implementing policy interventions
in developing nations.
Knowledge Bank: Because of its breadth of knowledge, the Bank serves as a
repository for data from various nations and business sectors. The Bank needs research
to choose its intervention plan and to keep an eye on the nations to identify early
warning sign. The Bank can give its member countries pertinent advice based on its
research. Academics, decision-makers in government, businesses, and others may use
the databases hosted by the bank for their pertinent work. Some of the extremely
helpful reports and databases that are utilised extensively around the world include
World Integrated Trade Solutions and Doing Business Reports.
[Link] The World Bank Group Institutions
International Development Association (IDA)
The International Development Association (IDA) is the part of the World Bank that
helps the world’s poorest countries. IDA was founded in 1960 with the intention of
eradicating poverty by offering grants and zero- to low-interest loans (referred to as
“credits”) for initiatives that enhance economic growth, lessen inequality, and enhance
people’s quality of life. IDA is a supplementary lending arm to the International Bank
for Reconstruction and Development (IBRD), the World Bank’s first lending institution
(IBRD). In order to promote equity, economic development, job creation, higher
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salaries, and improved living conditions, IDA supports a variety of development initiatives. Economic and
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One of the major donors to the 75 poorest nations in the world, IDA is the main source
of funds for these nations’ essential social services.
International Finance Corporation (IFC)
This division of the Bank works on initiatives that will develop the private sector in its
member nations, particularly those that will have an impact on welfare. By providing
loans, acquiring equity shares, issuing stock options, or splitting profits, the organisation
can assist businesses in the private sector. Additionally, it might offer venture capital,
encourage other private firms to engage, and generally work to expand the capital
market in developing nations.
Multilateral Investment Guarantee Agency (MIGA)
Through its efforts, MIGA aims to direct foreign investment into disturbed and
underdeveloped nations. The most crucial of them are the political risk insurance policies
that investing companies can buy to safeguard themselves from any issues that might
occur as a result of their investments in host nations. Additionally, the organisation
offers services including technical support to improve the business climate, resolve
investment disputes, and encourage foreign capital flows in unstable nations that most
need them.
International Centre for Settlement of Investment Disputes (ICSID)
ICSID provides a forum for investors to resolve their conflicts with the host states. The
non-commercial risks associated with foreign investments were thought to require
attention. It also permits circumstances in which one of the disputing nations is not a
member of the organisation. Additionally, it could comprise actions that are not
considered foreign investments yet differ from regular business dealings.

6.6 NATURAL ENVIRONMENT

We also need to pay attention to many reports that warn of the threat to future
prosperity if current overconsumption of natural resources is not stopped while thinking
about the environmental challenges of international [Link] aspects that have
a substantial impact on how a business operates, such as climate, minerals, soil,
landform, rivers and oceans, coast lines, natural resources, flora and fauna, etc., are
equally important but often overlooked. The resources for each firm are determined
by the surrounding natural environment. One part of business is manufacturing, which
depends on the physical environment for inputs such raw materials, labourers with a
variety of abilities, water, fuel, etc. Geographical variables influence trade between
two nations or two regions of a nation. Due to natural circumstances, some places are
more suited for the manufacturing of particular items, while other places have a demand
for them. Geographical variables influence transportation and communication more
than other business-related aspects. Landforms that are uneven, deserts, oceans,
woods, rivers, etc. prevent the development of this essential infrastructure. Some
businesses, most significantly agriculture, greatly rely on nature, including oil drilling,
coal and ore mining, and mining for minerals. Therefore, the effects on the environment
cannot be disregarded, and they must be given high importance for any business to
succeed.
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International Marketing Environmental Issues
Environment Analysis
Environmental and ecological concerns have attracted attention on a global scale. There
have been many consumer and industrial items produced that have negative environmental
effects as a result of industrialization, development, and the entry of multinational
corporations. Uncontrolled industrialisation, deforestation, heavy traffic, population
growth, and illiteracy are the main causes of environmental deterioration. Weather and
climatic changes have resulted from this. Industries’ waste discharges have contaminated
the air, water, and land. Therefore, it has been believed that business should practise
social responsibility. Companies have created the following practises and policies to
include environmental issues into their business plans in order to protect the environment:
i. Protect and promote a clean, green environment
ii. Promote renewable energy
iii. Safeguard and conserve wildlife and plants, particularly endangered species
iv. Recycling waste
v. Obey national and international environmental pollution laws
vi. Encouraging the production of energy-efficient products
vii. Accomplish sustainable growth by allowing markets to work within an
appropriate framework of cost-efficient regulations;
viii. Encourage good corporate governance by employing best management
techniques, upholding moral principles for efficient wealth management and
distribution, and fulfilling social obligations for the long-term welfare of all
stakeholders
ix. Business initiatives to develop environmental awareness campaigns
x. Study the environmental effect of products over their entire life cycle
xi. Establish reward programmes for ethical environmental behaviour
xii. Support for environmental organisations as part of CSR initiatives

6.7 ECONOMIC AND SUSTAINABLE

ENVIRONMENT
Major demographic changes, such as population growth, changes in the age structure,
urbanisation, and spatial redistributions due to migration, as well as rising per capita
income and changing consumption patterns, are the primary causes of the increased
scale of economic activity and its ensuing effects on a finite [Link] can be argued that
economics should take the lead in addressing the issue of sustainable development.
How to allocate the planet’s limited resources to meet “the needs of the present without
sacrificing the ability of future generations to meet their own needs” is the central dilemma
of sustainable development. How to allocate limited resources to achieve desired goals
is one of economics’ main areas of study; in fact, one common definition of economics
is the study of allocation under situations of scarcity.
More specifically, economics focuses on the production, distribution, and consumption
114 of products and services, which are a major force behind both present changes in
earth systems and development (raising standards of living by providing for fundamental Economic and
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human needs like food and shelter). Understanding the benefits and drawbacks of
different options as well as the trade-offs involved depends on economics and earth
system sciences.
For a nation, achieving economic development is essential. What if it results in
environmental deterioration, though? There is major concern about how far we can
protect the environment without damaging its constituents because globalisation has
opened prospects for economic development in so many nations.
Over the past few years, economic activities including production and consumption
have contributed to environmental degradation. We must be aware of the idea of
sustainable development as an alternative approach if we are to comprehend the effects
of economic expansion and development on the environment. An approach to economic
planning known as “sustainable development” aims to promote economic growth while
protecting the environment’s quality for next generations. The idea of sustainable
development proved challenging to put into practise despite being quite popular in the
final two decades of the 20th century. This is mostly because the outcomes of long-
term sustainability evaluations depend on the specific resources being examined. The
economy and the environment are interconnected and rely on one another.
So, environmental destruction will result from development that disregards its effects
on the environment and the ecosystem that supports life. Development that will enable
all future generations to potentially live with an average quality of life that is at least as
high as that being experienced by the current generation is what is required for sustainable
development.
In order to reduce resource depletion, environmental degradation, cultural disruption,
and social instability, sustainable development more specifically attempts to reduce the
absolute poverty of the poor. In this view, sustainable development is a type of growth
that secures the expansion of agriculture, manufacturing, power, and services to meet
everyone’s basic needs for employment, food, energy, water, and shelter, especially
those of the impoverished majority. We ought to leave the following generation no less
than what we have inherited in terms of “quality of life” assets.

6.8 ECONOMIC DEVELOPMENT AND

SUSTAINABILITY
Sustainability in the broadest sense—how to manage the environment—is only one
aspect of sustainable development. The goal of sustainable development is to
simultaneously reduce poverty, raise material standards of life, and preserve or improve
the essential natural resources needed for future prosperity. While much of the work in
development economics is focused on reducing poverty, much of the work in
environmental sciences is focused on environmental sustainability. Integration of
development and environmental research is required to move toward sustainable
development. Therefore, sustainable development and economic development go hand
in hand. Achieving sustainable development is a difficult and urgent task. Significant
continuous changes in earth systems may have a significant impact on human welfare.
Along with environmental considerations, reducing poverty and addressing rising
inequality in the face of these environmental changes are crucial social and economic
aspects of sustainable development. There are compelling grounds for putting more
effort into improving our comprehension of the economic, social, and environmental
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International Marketing aspects of sustainable development, which would necessitate deeper integration of the
Environment Analysis
natural sciences, economics, and social sciences in general.
Measures of sustainable development
Measures of inclusive wealth have been devised by economists in an effort to gauge
the worth of all assets, including manufactured, human, and natural capital. Innovation
and technology have been the primary drivers of economic progress and growing
material standards of living since the start of the Industrial Revolution. However, because
the majority of ecosystem services and natural capital cannot be quantified, innovation
incentives tend to discourage the preservation or improvement of natural capital and
the ecosystem services it supports. Direct incentives for innovation to improve natural
capital and ecosystem services are required to encourage pro-environment innovation.
Business decisions will be impacted by how countries and governments are acting.
The present generation can encourage construction that improves the built environment
and natural environment in ways that are compatible with
i. Conserving natural resources
ii. Preservation of the natural ecological system’s capability for rejuvenation
iii. Preventing future generations from bearing additional expenses or risks.
Leading environmental economist Herman Daly asserts that the following actions must
be taken in order to achieve sustainable development:
a) Keeping the human population below the environment’s carrying capacity.
The environment’s capacity to support life
b) Rather than requiring more input, technological advancement should be input-
efficient.
c) It is important to harvest renewable resources sustainably, which means that
the pace of extraction shouldn’t be higher than the rate of regeneration.
d) The rate of depletion of non-renewable resources should not outpace the rate
of development of renewable alternatives,
e) Pollution-related inefficiencies need to be fixed.
Despite the signing of multiple international environmental treaties, achieving successful
agreements is still challenging for a number of reasons. Environmental issues transcend
political lines; therefore, they can only be fully addressed with the cooperation of several
governments, some of which may have substantial differences on critical aspects of
environmental policy. Furthermore, many nations, particularly those in the developing
world, have been hesitant to sign environmental treaties because the solutions to
environmental issues frequently result in social and economic burdens in the nations
that accept them.A growing number of environmental treaties have included clauses
intended to promote their adoption by developing nations. These actions include sharing
financial resources, transferring technologies, and setting distinct deadlines and
requirements for execution. Therefore, when making judgments on international business,
the home country and the host country must have similar views regarding sustainability
and economic [Link] social and environmental effects of marketing activities
are a point of contact between sustainability and international marketing. In order to be
sustainable, an international marketing strategy must incorporate its social, cultural,
116 economic, political, and environmental facets.
 Economic and
6.9 SUMMARY Natural Environment

The economic environment is a key factor in determining how an international business

will grow because it typically varies between the home country and the host country.
An international marketer conducts a wide economic indicator analysis of the host
country before making any international business decisions. It is explained how different
aspects of the economic environment affect decisions made in international marketing.
The unit describes the functions and pursuits of the World Bank and IMF. Regional
trading blocks and the idea of different groupings have both been considered in relation
to several regional trading blocks. Finally, the unit discusses the natural environment,
including its economic and sustainable aspects as well as sustainability and economic
growth.

6.10 SELF-ASSESSMENT QUESTIONS

1) Why should an international marketing manager monitor the economic environment?
2) What elements make up the economic environment? Explain.
3) Explain the impact of the economic environment on decision-making.
4) Explain the mandates and functions of the IMF
5) Discuss the primary role of the World Bank.
6) What are the different types of trading blocks? What distinguishes them?
7) Discuss about how natural environments affect international marketing decisions.
8) Discuss economic development and sustainability.

6.11 FURTHER READINGS

 Cateora, P. R., Gilli, M.C., and Graham, J. L. (2011) International Marketing,
Fifteenth Ed. Tata McGraw Hill, 2011
 Czinkota, M. and Ronkainen, I.(2001). International Marketing, 6th edn.,
Fortworth, Harcourt College Publishers.
 Doole, Lowe and Kenyon, International Marketing Strategy, Eighth Edition
Cengage Learnings.
 Goodland, R. Daly, H. Serafy, S.E. Droste, B.V. (1991). Environmentally
Sustainable Economic Development: Building on Brundtland, (New York:
UNESCO, 1991).
 Green M.C., and Keegan, W.J. (2020). Global Marketing Management,10th
edn., Prentice Hall of India.
 Philip Cateora and John Graham, International Marketing, Tata McGraw Hill,
2019.
 Warren J. Keegan, Global Marketing Management, 7th edn., Prentice Hall, India,
2002.
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