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Globalization and Poverty Introduction In this essay, I am going to investigate the globalization and poverty in the world. Meanwhile, its impact on global marketing activities will also be addressed. It is an interesting topic to study, as you will know the reason behind by the following quotes: ‘Over the past 20 years, the number of people living on less than $1 a day has fallen by 200 million, after rising steadily for 200 years’ (James Wolfenson, president of World Bank, World Bank Report, 2002)1 Globalization has dramatically increased inequality between and within nations. ‘ (Jay Mazur, US Union leader, 2000)2 So, who was telling us the truth? Our main objective of writing this essay is to understand how globalization, poverty and global marketing strategies affect each other, so as to bring insight to global market development through studying globalization progress and poverty in nowadays. This essay is comprised of five major parts: First, we will talk about globalization and its impact. Second, the global poverty issue will be investigated.
Third, new market opportunities in poor markets will be studied. And finally, I will conclude the essay with my own opinion on future global market development and poverty issue. Globalization History and Definition The term ‘globalization’ has been used by economists since the 1980s. The earliest written theoretical concepts of globalization were proposed by an American entrepreneur-turned-minister Charles Taze Russell in 1897. 3 Later on, this term was further defined by several influential views in recent years. The inexorable integration of markets, nation-states, and technologies to a degree never witnessed before???in a way that is enabling individuals, corporations and nation-states to reach around the world farther, faster, deeper and cheaper than ever before. ‘ (T. L. Friedman, author of ‘The World is Flat’)4 ‘A social process in which the constraints of geography on social and cultural arrangement recede and in which people become increasingly aware that they are receding. ‘ (M. Waters)5 As we can see, there is a consensus and general understanding about globalization in everyone’s mind.
It is all about overcoming the geographical constrains and communicating around the world to facilitate the interaction and cooperate globally. General impact by Globalization ‘Starting from the fall of Berlin Wall on 9th Nov 1989, the world was flatten through eliminating regional barriers and rapid information flow’ claimed by T. L. Friedman. 6 With less than 20 years, the impact of globalization has been influencing the world greatly in 12 areas, including industrial, financial, economic, political, informational, language, competition, cultural, ecological, social, technical and legal/ethical. Emerging Economies Large economies have been located mostly in the Trial Region of the world (N. America, W. Europe and Japan, collectively producing, more than 80 percent of the world GDP with 20 percent of the world’s population) in 20th century. 8 However, in the next 10 to 20 years, the greatest commercial opportunities are expected to be found increasingly in 10 big emerging markets (BEMs) through globalization: the Chinese Economic Area (CEA), India, Brazil, Argentina etc. As a result, the BEMs will be accounted for the overwhelming bulk of internationally trade in United States. One US reporter, Sara Bongiorni, has tried to live a life without ‘made-in-China’ products in US for one year in 2005-06. 10 At the end of experiment, she found that life was harsh and it was very difficult to live without China products. As 14. 6% products available in US market were imported from China, the growing power of BEMs was shown obviously in this experiment. Poverty Definition
In 2001, the World Bank defined ‘Extreme Poverty’ as living on less than US$ (PPP???Purchasing Power Parity) 1 per day, and moderate poverty as less than $2 a day. 11 Apart from the ‘dollar-a-day poverty line’, the United Nations Development Program(UNDP) has introduced a human poverty index (HPI) containing three variables to define poverty: % of people expected to die before age 40, of literate adults, and of people without access to health services and safe water and of underweight children under 5. 12 2. Current situation
According to the statistics presented by the World Bank, the share of population of developing countries living on less than US$1 per day declined from 40% to 21% between 1981 and 2001. However, this figure was achieved by mainly a substantial reduction of number of poor in Asia (e. g. China and India). Furthermore, the total number of people living on less than US$2 per day increased worldwide. In particular, poverty has increased significantly in Africa in terms of poverty incidence as well as the depth of poverty. 13 3. Is Globalization reducing poverty and inequality?
Some say ‘Yes’ that globalization is the door that opens up the market of poor country to the international market for foreign trade and long-term capital flows. Globalization brings a large impact on the work opportunities of migrants and improves their living standard. It also encourages entrepreneurial opportunities for the poor and for small enterprises. 14 Some propose ‘Anti-globalization’, as they argue that globalization causes poor countries to lose their national market and exploit people in these poor nations to become a cheap labour.
Also, the shift to outsourcing has contributed to the widening economic gap between skilled and unskilled workers in developed countries. 15 In my opinion, both parties are pointing the reality of globalization. However, how to reduce the negative impact and promote the positive impact brought by globalization should be something we need to focus. Therefore, I will introduce new market opportunities in poor countries to reduce poverty by foreign investment in the next part. New market opportunities at the bottom of the economic pyramid Introduction and Definition
Although consumers at the bottom of global economic pyramid (BOP) represent the majority of the global consumer market, they have so far largely overlooked. There are a growing number of international consumer goods companies which are tapping into the low-income markets to make large profits, as well as to help lift billions of people out of poverty. In terms of income levels, there are around 4. 0 billion people who have an annual income of less than International $3000 per capita at the bottom of the pyramid. 16 Opportunities at the BOP market: A. Food and consumer goods
Since the low-income class has huge demand for food and basic consumer goods (e. g. washing powder, shampoo and soaps), international consumer goods companies, such as P&G, can tap into the market. Even more, they can use this market as a testing ground for eco-friendly products. Because these products can reduce the use of resources such as water. 17 B. Financial Service ‘Micro-credit’ or ‘Micro-finance’ has been a huge success in promoting small business among the poor. It is a financial innovation which originated in Bangladesh by Jonathan Swift.
By providing small room and other financial services, the poor can form self-help group and develop their own business. It contributes towards reducing poverty and improving poor people’s living standard. 18 C. Telecom Service Poor countries have a large potential for market expansion in telecom industry. Between December 2005 and December 2006, the number of mobile phone users in developing countries grew 96. 8% to 1. 5 Brillion. Furthermore, some mobile phone companies are introducing low costs mobile specifically aimed at targeting these lower income consumers.
The development of mobile phone market can benefit the poor nations a lot, as it helps them overcome the lack of telecom infrastructure in order to find jobs, obtain market information and prices, find direct consumers for their products, etc. Ultimately, they can enjoy higher employment and increase disposable income. Conclusion Due to rapid population growth, the market potential of poor nations is growing larger. According to World Bank projections, the population could swell to more than 6 Billion people by 2040.
Therefore, international companies should be well-prepared for the new market entry. For example, companies should do a broad and deep market research to investigate the market needs and local consumer behaviour, in order to create the most suitable marketing mix for poor country market. Moreover, understanding others’ cultures is important as well. It can be done by hiring local stuff and work with them. At the same time, the local stuff can be empowered by foreign business practice and company product knowledge for future market expansion in poor countries.
Strategic corporate planning and resources management should be done as well if the company really plans to root in a particular poor nation. Apart from generating profit, international companies should also consider corporate social responsibility and help reducing the poverty and inequity in poor countries, as they are the potential customers in the market. Boosting the economy in poor countries can achieve ‘win-win situation’???people can have a better living standard, while company can generate satisfactory profit as well as corporate branding.