Chapter 10- Multinational Market Regions and Market Groups

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Multinational market regions

those groups of countries that seek mutual economic benefit from reducing trade and tariff barriers

Economic cooperative agreements

countries look for economic alliances to expand access to free markets. (WTO - 151 members and 31 observers)

Governments and businesses worry that the EU, NAFTA, and other cooperative trade groups will become

regional trading blocs without internal trade restrictions but with borders protected from outsiders

Successful economic union

Requires favorable economic, political, cultural, and geographic factors as a basis for success

In the past, a strong threat to the economic or political security of a nation was

the impetus for cooperation

Recent creation of multinational market groups has been driven by

the fear that not to be part of a vital regional market group is to be left on the sidelines

Economic Factors

Markets are enlarged through Preferential tariff treatment for participating members and Common tariff barriers against outsiders. Nations with complementary economic bases. Economic union must have agreements and mechanisms in place to settle economic disputes.

The demise of the Latin American Free Trade Association (LAFTA

Result of economically stronger members not allowing for the needs of the weaker ones

Political Factors

State sovereignty and The importance of political unity to fully achieve all the benefits of economic integration

State sovereignty

One of the most cherished possessions of any nation and relinquished only for a promise of significant improvement of the national position through cooperation

Geographic and temporal proximity

Differences across time zones are more important than physical distances. Trade tends to travel more easily in north-south directions then it did in ancient times. Countries that are widely separated geographically have major barriers to overcome in attempting economic fusion

Cultural factors

The more similar the culture, the more likely a market is to succeed because members understand the outlook and viewpoints of their colleagues

There are five fundamental groupings for regional economic integration ranging from

ranging from regional cooperation for development, which requires the least amount of integration, to the ultimate integration of political union.

The most basic economic integration and cooperation

regional cooperation for development (RCD)

RCD

governments agree to participate jointly to develop basic industries beneficial to each economy. Each country makes an advance commitment to participate in the financing of a new joint venture and to purchase a specified share of the output of the venture.

A free trade area (FTA)

requires more cooperation and integration than the RCD. It is an agreement between two or more countries to reduce or eliminate customs duties and nontariff trade barriers among partner countries while members maintain individual tariff schedules for external countries.

A customs union

represents the next stage in economic cooperation. It enjoys the free trade area's reduced or eliminated internal tariffs and adds a common external tariff on products imported from countries outside the union. E.g. France & Monaco

Common market (CM)

Eliminates all tariffs and other restrictions on internal trade. Adopts a set of common external tariffs. Removes all restrictions on the free flow of capital and labor among member nations.

Political Union

The most fully integrated form of regional cooperation. It involves complete political and economic integration, either voluntary or enforced. E.g. COMECON organized by Soviet Union

Commonwealth

a voluntary organization that provides for the loosest possible relationship classified as economic integration. E.g. British Commonwealth

Two new political unions came into existence in the

1990s- The Commonwealth of Independent States (CIS) - e.g. republics of former SU and EU and The European Union (EU)

Market potential needs to be viewed in the context of regions of the world rather than

country by country

The globalization of markets, the restructuring of the Eastern European bloc into independent market-driven economies, the dissolution of the Soviet Union into independent states, the worldwide trend toward economic cooperation, and enhanced global competition make it important that

market potential be viewed in the context of regions of the world rather than country by country.

Of all the multinational market groups, none is more secure in its cooperation or more important economically than the

European Union

The Single European Act

Removed all barriers to trade. Made the European Community a single internal market. Proposed a wide variety of new commercial policies, including single European standards

NAFTA - Canada, Mexico, and the United States

When NAFTA was ratified and became effective in 1994, a single market of 360 million people with a $6 trillion GNP emerged. NAFTA required the three countries to remove all tariffs and barriers to trade over 15 years, and beginning in 2008 all tariff barriers were officially dropped But, for the most part, NAFTA is a comprehensive trade agreement that addresses, and in most cases improves, all aspects of doing business within North America.

2nd largest after NAFTA

Southern Cone Free Trade Area. Most influential and successful free trade area in South America

DR-CAFTA (Dom Rep., Central American Free Trade Area)

represents another important step toward the ultimate goal of a free trade agreement encompassing all the Americas.

Four major events account for the vigorous economic growth of the ASEAN countries

1.) the ASEAN governments' commitment to deregulation, liberalization, and privatization of their economies;
2.) the decision to shift their economies from commodity based to manufacturing based;
3.) the decision to specialize in manufacturing components in which they have a comparative advantage (this created more diversity in their industrial output and increased opportunities for trade); and
4.) Japan's emergence as a major provider of technology and capital necessary to upgrade manufacturing capability and develop new industries.

Goals of the ASEAN

Economic integration and cooperation through complementary industry programs. Preferential trading, including reduced tariff and nontariff barriers. Guaranteed member access to markets throughout the region. Harmonized investment incentives

APEC was formed in 1989

Provides formal structure for major governments to discuss mutual interests in open trade and economic collaboration and includes all major economies of the region and the most dynamic, fastest-growing economies in the world

APEC has as its common goal a commitment to

open trade, to increase economic collaboration, to sustain regional growth and development, to strengthen the multilateral trading system, and to reduce barriers to investment and trade without detriment to other economies.

Africa

Little actual economic integration: Characterized by political instability in recent decades and Unstable economic base.

Two most active regional cooperative groups in Africa

Economic Community of West African States (ECOWAS)
Plagued with financial problems, conflict within the group, and inactivity on the part of members
Southern African Development Community (SADC)
Most advanced and viable of Africa's regional organizations

Middle East

Has been less aggressive in the formation of successfully functioning multinational market groups.

Strategic Implications for Marketing in Europe

Through access to greatly enlarged markets with reduced or abolished country-by-country tariff barriers and restrictions. World competition will intensify. Economic integration creates large mass markets for the marketer. Reciprocity (If a country does not open its market to an EU firm, it cannot expect to have access to the EU market)

Marketing Mix Implications

companies often charged different prices in different European markets. As long as products from lower-priced markets could not move to higher-priced markets, differential price schemes worked. Reducing the number of brands to focus advertising and promotion efforts

Marketing efficiency affected by

Development of mass markets, Encouragement of competition
Improvement of personal income, Various psychological market factors

Production efficiency

Derives from specialization, Mass production for mass markets, and Free movement of the factors of production

Market groupings intensify competition by

Protectionism within a market group but may foster greater protectionism between regional markets

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