The Impacts Of Political And Economic Factors On Marketing

Running head: POLITICAL AND ECONOMIC FACTORS ON MARKETING 1

The Impacts of Political and Economic Factors on Marketing in Emerging Markets

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POLITICAL AND ECONOMIC FACTORS ON MARKETING 2

The Impacts of Political and Economic Factors on Marketing in Emerging Markets

An emerging market refers to an economy with low to middle per capita income.

These economies present about 80% of the global market (Ismihan & Metin-Ozcan, 2009). It

is for this reason that international companies tend to expand their global market share by

investing in the emerging markets. When a company with enough resources and an advanced

technological capability invests abroad, its shareholders and the citizens of the host nation

stand to gain. However, no matter how good the benefits of the business and the host country

are, success is not assured. Elections and other political factors, and economic crises in

emerging markets can destroy the laid-down plans international businesses. The interaction of

these factors and the consequences of the political choices that international companies make

significantly influence the marketing of products and services in the emerging markets. This

report explores the various political and marketing factors in emerging markets and how they

affect marketing with reference to Coca-Cola Company Limited.

Political Factors

Political factors that affect business are often given a lot of considerations. Various

aspects of government policy have a significant impact on marketing. In any emerging

market, all firms are expected to follow the law, which varies from one country to another. It

is up to the managers to find out how future legislation can affect their operations. There are

common political factors in emerging markets that have impacts on marketing in different

ways.

Corruption Level. Corruption is very rampant in emerging markets. Dishonest in

handling operations can significantly affect business. The efficiency of business practices is

significantly influenced by government policies concerning corruption and crimes (Ismihan,

& Metin-Ozcan, 2009). Although corruption is in almost all countries around the world, it is

more prevalent in the emerging markets. Brazil, as one of the BRICS countries, has relatively

POLITICAL AND ECONOMIC FACTORS ON MARKETING 3

high corruption levels which have resulted in violent protests. Brazil is ranked as one of the

largest markets for the Coca-Cola Company across the globe (Team, 2014). As a result of

corruption, Brazil experienced a long foreign debt crisis and huge fiscal imbalance

(Woodruff, 2012). Such issues discourage foreign investments. Brazil’s participation in the

world trade and exports declined in during the corruption protests which in turn, affected the

sales of Coca-Cola products (Woodruff, 2012). Due to corruption, violent demonstrations

emerged which negatively impacted the marketing campaigns of the Coca-Cola products.

Global political issues. Differences in political policies across nations have a

significant impact on marketing. People's cultures and religions play a role in the political

policies of a country. Coca-Cola company is present in the Muslim countries, most of which

have been involved in terrorist activities. The United States' fight against Al-Qaida and other

terrorist groups in Iran affected the sales of US-based company products. As noted by (Önder

& Şimga-Mugan, 2006), Iran, Turkey, and other Muslim countries refused to consume

products from any US-based companies. This greatly affected the marketing of Coca-Cola

Company products and a significant reduction in sales. The sales of Coca-Cola products in

the Muslim countries associated with Al-Qaeda reduced significantly, leading to a decrease in

revenues.

Trade restrictions. Trade restrictions are a common phenomenon in emerging

markets. The international community usually imposes restrictions on countries that do

violate human rights or policies. When a country has restrictions, businesses cannot market

their products outside the country. Countries under the US economic sanctions due to

political reasons cannot buy or sell Coca-Cola products. Examples of such countries,

according to Hebblethwaite (2012), are Cuba and North Korea. Although both countries are

emerging markets, marketing of the Coca-Cola product is not allowed. The countries present

opportunities for the growth of the Coca-Cola market, but the company cannot penetrate due

POLITICAL AND ECONOMIC FACTORS ON MARKETING 4

to the sanctions. This presents a very big challenge for all the US-based companies that have

shown interest in the countries.

Economic Factors

Emerging markets face various economic challenges that affect international

investors. The economic factors include interest and taxation rates, inflation, unemployment,

inadequate infrastructure, government spending levels, among others.

Inflation. The prices and currency value instability in emerging market have

presented a big challenge for the Coca-Cola Company. According to Aliaga-Diaz, Shanahan,

Davis & Lemco (2011), the emerging markets’ inflation exceeded 6%, which more than

double of the developed markets. The concern is even larger in the largest emerging markets

such as China, Brazil, and India (Aliaga-Diaz et al. 2011). Inflation leads to higher labour and

production costs. The rise in wages in China comes at a period when the country’s money

and credit growth rates are rising faster than its already high economic growth rate (Aliaga-

Diaz et al. 2011). The Coca-Cola Company is, therefore, forced to raise employees’ wages

and hence increasing production costs. The high production costs can be compensated by

raising product prices which will affect the final consumers whose wages have not increased.

Marketing expenses are likely to increase, but consumption will decrease. Some consumers

will opt for cheaper products or even quit buying the products due to high costs of living.

Unemployment. Unemployment is rampant in emerging countries which are

characterized by a large population. India is one of the largest emerging markets in the world,

but unemployment is a serious problem in the country as reported by Sheth (2011). The

number of youths without jobs in the country is increasing at an alarming rate every year as

stated by Heshmati & Lovic (2012). It has become a challenge to Coca-Cola Company during

segmentation of the market to relate to the low spending power of the bigger proportion of

the market. The unemployed people have lower purchasing power on the goods offered by

POLITICAL AND ECONOMIC FACTORS ON MARKETING 5

Coca-Cola Company in the country. In such situations, the marketing campaigns cannot have

any impact on the sales volumes of the products, leading a decrease in sales revenue and

profit margin.

Inadequate infrastructure. Inadequate infrastructure is another challenge facing

international investors in emerging markets. Heshmati & Lovic (2012) indicate that there is

the industrial infrastructure in India is inefficient. There are poor roads that make it difficult

to travel and transport goods from one point to another. Accessibility is one of the key factors

that drive a business. With poor roads network, Coca-Cola Company cannot reach new

markets in India. Heshmati & Lovic further state that the seaports in India are locked, making

it difficult to transport goods and working with suppliers. Management of larger orders by the

suppliers or distributors of the Coca-Cola Company has become a hurdle. Companies

entering emerging markets should first understand the market well in order to come up with

strategies to overcome them.

Recommendations on how to manage the Issues

Although investing in emerging markets imposes several challenges, there are a

number of marketing strategies that help in managing the risks. The first step to manage some

of the risks in emerging markets is to conduct due diligence (Ferguson, 2011). Ferguson

(2011) notes that performing due diligence in emerging markets can be difficult compared to

developed market because of the lack of access to appropriate information. A company's

research into the emerging market will mainly put an emphasis on how businesses relate to

the governments in the host nation and the bordering nations. In many instances, there are

costs that are associated with government-related inefficiencies. When a company is entering

an emerging market, such costs must be incorporated into the firm’s investment and

marketing decisions.

POLITICAL AND ECONOMIC FACTORS ON MARKETING 6

Another strategy of dealing with the political factors in emerging markets is to apply

diplomacy in managing the governmental bureaucracy and the various hurdles (Anshu,

Chiquan & Songpo, 2007). Most of the governments in the developing markets do not require

transparency in their dealings. The investing companies should, therefore, develop their

remedies to improve transparency. Companies should identify and educate all the interested

stakeholders on the importance of transparency. These measures should involve the

government officials, employees, and customers in a bid to understand and address their

interests in establishing effective corporate governance codes (Ferguson, 2011). In a case

where the government agencies are not cooperative in guaranteeing transparency, a company

can choose multinational corporations as suppliers or customers. This will impose discipline

on the companies' business marketing operations. To further put pressure on potential

suppliers who might want to take advantage of the loopholes in a government, the company

should insist on dealing with partners that demand transparency in their operations as stated

by (Anshu, Chiquan & Songpo, 2007). If a firm implements strict guidelines on corporate

governance which have been employed in developed nations, the risks posed by the political

hurdles are likely to decrease significantly.

Business diversification is an efficient method for reducing risks associated with

emerging markets. Diversification of business operations in various countries can

significantly reduce the risks in emerging markets. Ferguson (2011), states that problems in

one location cannot affect the operations of the whole business if the firm operates in

multiple countries. Investment diversification gives an enterprise the advantage of dealing

with each government individually. In addition to preventing an enterprise from operational

failures, diversification can shield against the currency fluctuations that are typical in

emerging markets.

POLITICAL AND ECONOMIC FACTORS ON MARKETING 7

Conclusion

Emerging markets can offer investment returns are notably higher than those of the

developed markets. Although there are various marketing challenges due to issues of

corruption and uncertainty, emerging markets have grown in recent periods. The marketing

success in these markets will depend on the acknowledgment, anticipation, and mitigation of

the many political and economic risks that are imminent in such countries.

POLITICAL AND ECONOMIC FACTORS ON MARKETING 8

References

Aliaga-Díaz, R.A., Shanahan, J., Davis, J.H., Lemco, J. (2011). Emerging markets’ inflation:

The latest import? Retrieved April 04, 2017, from

http://www.vanguard.com/pdf/icremi.pdf

Anshu, S., Chiquan, G., & Songpo, K. (2007). Marketing strategy in transition economies:

the case for India. International Journal of Business Research, ISSN: 1555-1296

Ferguson, M. (2011). Lessons on Managing Risk in Emerging Markets. Journal of

Accountancy. Retrieved April 04, 2017, from

http://www.journalofaccountancy.com/news/2011/jul/20114177.html

Hebblethwaite, C., (September 11, 2012). Who, What, Why: In which countries is Coca-Cola

not sold?. BBC News. Retrieved April 04, 2017, from

http://www.bbc.com/news/magazine-19550067

Heshmati, N., & Lovic, S. (2012). Opportunities and Challenges in Emerging Markets: A

case study of two multinational companies in India. Retrieved April 04, from

http://www.diva-portal.org/smash/get/diva2:537742/FULLTEXT02

Ismihan, M., & Metin-Ozcan, K. (2009). Productivity and growth in an unstable emerging

market economy: The case of Turkey, 1960-2004. Emerging Markets Finance and

Trade, 45(5), 4-18.

Önder, Z., & Şimga-Mugan, C. (2006). How do political and economic news affect emerging

markets? Evidence from Argentina and Turkey. Emerging Markets Finance and

Trade, 42(4), 50-77.

Sheth, J. N. (2011). Impact of emerging markets on marketing: Rethinking existing

perspectives and practices. Journal of Marketing, 75(4), 166-182.

Team, T., (March 12, 2014). Coca-Cola In Brazil: Global Events And Energy Drinks Could

Drive Growth (Part 1).Retrieved April 04, 2017, from

POLITICAL AND ECONOMIC FACTORS ON MARKETING 9

https://www.forbes.com/sites/greatspeculations/2014/03/12/coca-cola-in-brazil-

global-events-and-energy-drinks-could-drive-growth-part-1/#3af5109d7f5e

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