It is a basic cause for an individual’s wants and behaviour. When young, we all our thought about basic values, perceptions and wants from our family or any other important group. Countries with similar per-capita income may have different wants or preferences for products. Organisations or the companies always look out for that ‘cultural shifts’ in the market because it helps them to figure out the products that may have an increased demand in future by the customer.
For a multinational company to make high profits they need to acclimatize to the host country’s culture, religion and language, if they don’t someday or the other their business will deteriorate. As said by Bate and Snell, “there must be local marketing to appeal to local consumers and also to build relationships and trust”. For instance Mc Donald’s Food Corporation, Mc Donald’s products are package according to the culture of the locales. Like for example, Mc Donald’s’ caters its menu in other countries with the culture of the region. For instance, In India, menus are served only with chicken and fish items, while beef became a no-no item because cows are considered sacred in Hindu culture.
Prices In general prices and demand are interlinked – if the price of a product falls, the demand for that product rises and vice versa. On the other hand, when it comes to the basic necessities, demand doesn’t play a vital role, as consumers would purchase the products since it’s a necessity. Let’s take the example of ‘Instore’ previously known as ‘Poundstretcher’. Instore thought the market for the one pound store had become stagnant so they anticipated that their customers would move upmarket and changed their pricing of products. They didn’t realize that their customers are persistent on value and price. As a result, Instores this year’s projection shows that it has gone in a loss of a whooping 5.8million pounds and plans to change all its stores back to ‘Poundstretcher’.
This example shows that how importantly an organization needs to take pricing under consideration when it wants to estimate potential demand for its products. The Grocer (2009). Obsolescence and leapfrogging of product For an organisation leapfrogging is as important as any other factor when it comes to estimating potential demand for their products because most developing countries do not follow the same pattern as those in developed economy. For instance, In Tanzania, people have leapfrogged the use of landline phones, by directly moving towards cellular phones. The example of Tanzania cellular market is a perfect example for obsolescence and leapfrogging.
According to the BBC report majority of people use cellular phone instead of landline as the technology of cell phone was implemented furiously throughout Tanzania. (BBC, 2005). Now even in the far flung places there’s mobile network but one can hardly find a landline in even the cosmopolitan cities of Tanzania which is quite surprising but due to leapfrogging the potential demand is much higher for cellular phones so an organization like ‘British Telecom’ will never want to invest in Tanzania due to the leapfrogging as they will have to face severe crack down in their business. Instead of profits they will be looking forward for losses.
Income inequality In simple words income inequality means uneven distribution of wealth between the rich and the poor in a country. Income inequality is another factor that needs to be seen in order to estimate potential demand of a product. For example: the economist carried out a research about the income inequality in the U.S.A and its fascinating how it finds that twenty-five percent of America’s total income is earned by the top one percent of its population. The wealth that is earned by this top percentile is now at its peak since 1928. The Economist (2009).
Existing of trading Bloc In past the world had number of trade barriers that made imports and exports complicated and expensive. In today’s day there are considerably fewer trade barriers and the credit for this cutback largely goes to W.T.O. (World Trade Organization) and is further working to reduce it even more. Similarly, there’s an increasing growth in the regional trading bloc. A country may not be rich in its GDP or may not even have large population but its existence in the regional trading bloc creates its reach to a much bigger market. A great example would be that of ‘The U.K’ being under a regional trading bloc ‘The E.U’. For instance, the population of The U.K is roughly about 61.4 million (office for national statistics, 2009) which is not much when compared with China and India but The U.K’s presence in the regional trading bloc ‘The E.U’ gives her output access to a much larger market.
In short, being/not being in a trading bloc will surely have an impact on the potential demand for its product. Substitution If the price of a good rises, the demand for that good decreases and there will be an increase demand for its substitute and similarly if the price of that good decreases, there will be a decrease demand for its substitute. To make us understand simpler, a case study in the book ‘Economics’ by John Sloman shows us how Brazil in 1970s substituted petrol with alcohol when there was a fourfold increase in oil price.
‘A case of import substitution in Brazil’ Brazil by itself has very little oil and in 1970s there was a severe shortage of petrol in the international market and so it was costing them a fortune to import petrol. On the other hand the demand for sugarcane in the world market had slumped and Brazil was a major sugarcane exporter so there was a surplus of sugarcane left in Brazil. They came with a cunning idea to use the surplus sugarcane to produce alcohol and use it as a substitute for petrol. It went off with great demand but later in late 80’s it was more feasible to import petrol as the oil prices had declined so it was cheaper to import rather than producing alcohol as a substitute for petrol.
The main reason that simply multiplying the country’s expected per capita consumption by its population doesn’t necessarily lead to a good estimate for potential demand is very much true although the per capita and population is one of the main reasons but there are several other important factors such as prices, income elasticity, income inequality, substitution, obsolescence and leapfrogging of products, cultural factors and taste, existence of trading blocs, economical, political and technological issues that are explained above. These factors need to be taken into account for an organization if it is thinking to go global and that’s the reason this is an important consideration in the global business environment.
Daniels J.D., Radebaugh L. H., Sullivan D. P. (2009) International Business Environments and Operations (12th Edition) Pearson International Edition.
Holt D. ; Wigginton K.W. International Management (2nd Edition) Harcourt International (2002). Morrison J. The International Business Environment Palgrave (2002).
Charles Hill. (2008). Global Business Today. McGraw Hill
Sloman, John. Economics. 4th ed. New York: FT Prentice Hall, 2005. Print.