The economic level of a country is the single most important environmental element to which the foreign marketer task. The stage of economic growth within a country affects the attitudes toward foreign business activity, the demand for goods, the distribution systems found within a country, and the entire marketing process. In static economies consumption patterns become rigid and marketing is typically nothing more than a supply effort. In a dynamic economy, consumption patterns change rapidly. Marketing is constantly faced with the challenge of detecting and providing for new levels of consumption and marketing efforts must be matched with ever changing market needs and wants.
Economic development presents a two sided challenge. First, a study of the general aspects of economic development is necessary to gain empathy regarding the economic climate within developing countries. Second, the state of economic development must be studied with respect to market potential, including the present economic level and the company’s growth potential. The current level of economic development dictates the kind and degree of market potential that exists, while knowledge of the dynamism of the economy allows the marketer to prepare for economic shifts and emerging markets.
Economic development is generally understood to mean an increase in national production that result in an increase in the average per capita gross domestic product (GDP). Besides an increase in average per capita GDP most interpretations of the concept also imply a widespread distribution of the increased income. Economic development, as commonly defined today, tends to mean rapid economic growth and increases in consumer demand – improvements achieved in decades rather than centuries.
Stages of Economic Development:
The best known model for classifying countries by degree of economic development is the five stage model presented by Walt Rostow. Each stage is a function of the cost of labor, the technical capability of the buyers, the scale of operations, interest rates, and the level of product sophistication. Growth is the movement from one stage to another and countries in the first three stages are considered to be economically underdeveloped. Briefly the stages are as follows:
The traditional society: Countries in this stage lack the capability of significantly increasing the level of productivity. There is a marked absence of systematic application of the methods of modern science and technology. Literacy is low, as are other types of social overhead.
The preconditions for take off: This second stage includes societies in the process of transition to the takeoff stage. During this period, the advances of modern science are beginning to be applied in agriculture and production. The development of transportation communications, power, education, health, and other public undertakings has begun in a small but important way.
The takeoff: At this stage, countries achieve a growth pattern that becomes normal condition Human resources and social overheads have been developed to sustain steady development and agricultural and industrial modernization lead to rapid expansion.
The drive to maturity: After take off, sustained progress is maintained and the economy seeks to extend modern technology to all economic activity. The economy takes on international involvement. In this stage, an economy demonstrates that it has the technological and entrepreneurial skills to produce not everything but rather anything it chooses to produce.
The age of high mass consumption: The age of high mass consumption leads to shifts in the leading economic sectors towards durable consumer goods and services. Real income per capita rises to the point where a very large number of people have significant amounts of discretionary income.
Although Rostow’s classification has met with some criticism because of the difficulty of distinguishing among the five stages, it provides the marketer with some indication of the relationship between economic development and the types of products a country needs and of the sophistication of its industrial infrastructure.