Industrial firms

Industrial firms can take several measures to manage this inherent volatility such as maintaining broad product lines, raising prices faster and reducing advertising expenditures during booms, ignoring market share as a strategic goal, eschewing layoffs and focusing on stability. For most American firms, where corporate cultures emphasize beating competitors such stabilizing measures are usually given only lip service. Conversely, German and Japanese firms value employees and stability more highly and are generally better to managing volatility in markets.

Some US companies such as Microsoft and especially General Electric have been quite good at spreading their portfolio of markets served. Late 1990s declines in Asian markets were somewhat offset by strong American markets, just as late 1980s increases in Japanese demand had offset declines in the United States. Indeed one of the strange disadvantages of having the previously command economies go private is their integration into the global market. That is, prior to the breakup of he USSR, Soviets bought industrial products according to a national five year plan that often had little to do with markets outside of the communist bloc. There off cycle ordering tended to dampen demand volatility for companies able to sell there. Now privately held Russian manufacturers watch and react to world markets just as their counterparts do all over the globe. The increasing globalization of markets will tend to increase the volatility in Industrial markets as purchasing agents around the world act wit even greater simultaneity. Managing this inherent volatility will necessarily affect all aspects of the marketing mix, including product / service development.

Stages of Economic Development

Perhaps the most significant environmental factor affecting the international market for industrial goods and services is the degree of industrialization. Although generalizing about countries is almost always imprudent the degree of economic development can be used as a rough measure of a country’s industrial market. Lease recall Rostow’s five stage model of economic development presented; demand for industrial products and services can be classified correspondingly.

Stage 1 (the traditional society)

The important industrial demand will be associated with natural resources extraction – think parts of Africa and the middle east.

Stage 2 (preconditions or talks off)

Manufacturing is beginning. Primary needs will be related to infrastructure development — for example, telecommunications constructions and power generation equipment and expertise. Vietnam would fit this category.

Stage 3 (takeoff)

Manufacturing of both semi-durable and nondurable consumer goods has begun. Goods demanded related to equipment and supplies to support manufacturing. Russia and eastern European countries fit this category.

Stage 4 (drive to maturity)

These are industrialized economies such as Korea and the Czech Republic. Their focus is more on low cost manufacturing of a variety of consumer and some industrial goods. They buy from all categories of industrial products and services.

Stage 5 (the age of mass consumption)

These are countries where design activities are going on and manufacturing techniques are being developed and they are mostly services economies. Japan and Germany are obvious examples of countries that purchase the highest technology products and services mostly from other Stage 5 suppliers and consumer products from Stage 3 and stage 4 countries.

Another important approach to grouping countries is on the basis of their ability to benefit from and use technology particularly now that countries are using technology as economic leverage to leap several stages of economic development in a very short time. Perhaps the best indicator of this dimension of development is the quality of the educational system. Despite relatively low levels of per capita GDP, many countries (e.g, China, the Czech Republic and Russia) place great emphasis on education which affords them the potential to leverage the technology that is transferred.

Not only is technology the key to economic growth, but for many products it is also the competitive edge in today’s global markets. As precision robots and digital control systems take over the factory floor, manufacturing is becoming more science oriented and access to inexpensive labor and raw materials is becoming less important. The ability to develop the latest information technology and to benefit from its application is critical factor in the international competitiveness of managers, countries and companies. Three interrelated trends spur demand for technologically advanced products (1) expanding economic ad industrial growth in Asia, particularly China and India, (2) the disintegration of the Soviet empire and (3) the privatization of government owned industries worldwide.