Efficiency of Marketing System in Developing Countries

A system of marketing that is efficient by the casual text book definition, it will be a system that has limited practical us in the developing countries for the following reasons:

First, the traditional definition focuses on efficiency of a market operation and fails to encompass the efficiency of a marketing system as a whole. The sum total of the efficiencies of all market operations does not necessarily measure the efficiency of the entire marketing system, because the objectives at the micro level may (and they usually do) conflict with those at the micro level.

In developing countries, the efficiency of individual market operations or firms tends to have a multiplier inefficiency effect when viewed in the perspective of the total marketing system.

For illustration, in a labour surplus economy if, 10 firms are working efficiently at the most favourable input- output ratio, and if this requires the use of labour displacing technology by which each form displaces 10 persons, the system at the next sense that a highly perishable resource, the labour productivity of l00 persons, is unused. In such a situation, systems that are the most efficient at the micro level become undesirable and inefficient at the macro level.

Second, the traditional definition of marketing efficiency almost completely ignores the welfare aspect of the society. Even if we could ignore the first argument, and assume that sum total of efficient individual market operations results in an economically efficient total marketing system, it may still be one that is inconsistent with the maximization of the general welfare of the society.

In fact the former will sometimes only be achieved at the cost of the latter. For instance, in the developing countries the general welfare may call for the absorption of more surplus labour in the marketing sector rather than the use of capital intensive technology to obtain a favourable input-output ratio. Thus, the aim of overall marketing efficiency ought to be the supply of the package of goods and services to the consumer at the framework of the general welfare of the society.

A progressive marketing system in a labour surplus and capital deficient developing country would require the application of a different set of criteria for the analysis of market structure, conduct and performance.

A list of suitable criteria for defining an adequate market situation optimizing social welfare and maximize the efficiency of agricultural marketing systems in developing countries (some of which may be equally value for developed countries), is given hereunder:

1. Market Structure:

(a) Size and number of buyers and sellers ensuring an adequate intensity of price and quality competition.

(b) Freedom of entry and exit.

(c) Adequate size of sellers so as to encourage increased investment in business.

2. Market Conduct:

(a) Pricing practices which encourage grading and standardization of agricultural commodities.

(b) Uniformity of market charges.

(c) Pricing practices free of collusion and unfair or exclusionary tactics as well as black marketing.

(d) Pricing policies which encourage product quality improvement and greater consumer satisfaction.

3. Market Performance:

(a) Technological progressiveness

(b) Growth-orientation of agricultural marketing firms.

(c) Efficiency of resource use.

(d) Product improvement and maximum market services at the least possible costs.

An appropriate application of the above criteria will help redirect the marketing system of developing countries towards the following goals:

(i) Greater efficiency of resource use.

(ii) Increased labour absorption.

(iii) Lower consumer price and fair returns to the producers, with increased marketing services to both.

(iv) Development and growth of the marketing sector.

(v) Minimization of product losses.

(vi) Education of the consumer concerning price and qualities.

(vii) Increase in the intensity of competition, but only to the point that it continues to yield desirable consequences.

We believe that an appropriate measure of marketing efficiency for these countries must take account of these goals, and that policy proposals should be evaluated in relation to them. Any measure that is directed at the achievement of these goals will almost certainly contribute to greater efficiency.