Chapter10 Multinational Market Regions and Market Group1

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10

Multinational MarketRegions and MarketGroups

McGraw-Hill/Irwin

International Marketing, 13/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.

Chapter 10



Global Perspective

Might Free Trade Bring Peace to theMiddle East?

z

Multinational Market Regions – thosegroups of countries that seek mutualeconomic benefit from reducing trade and

tariff barriers.{Most important global trends today

z The world is awash in economiccooperative agreements as countries lookfor economic alliances to expand access

to free markets.



zGovernments and businesses worry thatthe EU, NAFTA, and other cooperativetrade groups will become regional trading

blocs without trade restrictions internallybut with borders protected from outsiders.

Global Perspective

Might Free Trade Bring Peace to theMiddle East?



La Raison d’ Etre

zSuccessful economic union requires

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

success.z The advantages of economic union

must be clear-cut and significant, andthe benefits must greatly outweigh thedisadvantages before nations forgo

any part of their sovereignty.



zIn the past, a strong threat to the

economic or political security of anation was the impetus for

cooperation.

La Raison d’ Etre



Economic Factors

zMarkets are enlarged through

preferential tariff treatment forparticipating members, common tariff

barriers against outsiders, or both.zNations with complementary economic

bases are least likely to encounterfrictions in the development andoperation of a common market unit.



zFor an economic union to survive, it

must have agreements andmechanisms in place to settleeconomic disputes.

z The demise of the Latin American Free Trade Association (LAFTA) was the

result of economically strongermembers not allowing for the needs of the weaker ones.

Economic Factors



Political FactorszState sovereignty is one of the most

cherished possessions of any nationand is relinquished only for a promiseof significant improvement of the

national position through cooperation.z The importance of political unity to

fully achieve all the benefits of economic integration has driven ECcountries to form the EuropeanUnion.



Geographic and Temporal Proximity &

Cultural Factors

zGeographic and temporal proximity

{ The most recent research demonstrates thatmore important than physical distance aredifferences across time zones.z 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 toovercome in attempting economic fusion.



zCultural factors

{ The more similar the culture, the more likelya market is to succeed because membersunderstand the outlook and viewpoints of

their colleagues.

Geographic and Temporal Proximity &

Cultural Factors



Patterns of Multinational

Cooperation

zRegional cooperation groups

{Governments agree to participate jointly todevelop basic industries beneficial to eacheconomy.

zFree trade area{An agreement between two or more countries

to reduce or eliminate customs duties andnontariff trade barriers among partner countrieswhile members maintain individual tariff schedules for external countries.



z Customs union

{Enjoys free trade area’s reduced or eliminatedinternal tariffs and adds a common externaltariff on products imported from countries

outside the union.z Common market

{Eliminates all tariffs and other restrictions on

internal trade, adopts a set of common externaltariffs, and removes all restrictions on the freeflow of capital and labor among member

nations.

Patterns of Multinational Cooperation



Patterns of Multinational Cooperation

zPolitical union

{Involves complete political and economicintegration, either voluntary or enforced.

{Commonwealth – a voluntary organization

providing for the loosest possible relationshipthat can be classified as economic integration.

{ Two new political unions came into existence in

the 1990s:z The Commonwealth of Independent States (CIS)

z The European Union (EU)



Global and Multinational Market

Groups

zReasons it is important that market

potential be viewed in the context of regions of the world rather than country bycountry:{ The globalization of markets

{ The restructuring of the Eastern European bloc intoindependent market-driven economies

{ The dissolution of the Soviet Union into independentstates

{ The worldwide trend toward economic cooperation

{Enhanced global competition



A Brief History of European

Integration

zOf all the multinational market groups,

none is more secure in its cooperation ormore important economically than theEuropean Union.

zHistorically, standards have been used toeffectively limit market access.

z The Single European Act



A Brief History of European Integration

(continued)

z EU Institutions

{ Form of federal pattern with executive,parliamentary, and judicial branches

{ European Union uses three legalinstruments:1. Regulations binding the member states directly and

having the same strength as national laws

2. Directives also binding the member states butallowing them to choose the means of execution.

3. Decisions addressed to a government, an

enterprise, or an individual, binding the partiesnamed.




(continued)

zEuropean Free Trade Association and

European Economic Area{For those European nations not willing to join

the EEC but wanting to participate in a free

trade area.{EFTA will most probably dissolve as its

members join either the European Economic

Area (EEA) or the EU.{European Economic Area – a single market

with free movement of goods, services, and

capital.



{ The EEA is governed by a special Council of

Ministers composed of representatives fromEEA member nations.


(continued)



European Union

zRatification of the Maastricht Treaty

(1992)

zEconomic and Monetary Union

z Treaty of Amsterdam

zExpansion of the European Union



Strategic Implications for Marketing in

Europe

zMultinational groups spell opportunity in

bold letters through access to greatlyenlarged markets with reduced orabolished country-by-country tariff barriers

and restrictions.zWorld competition will intensify as

businesses become stronger and more

experienced in dealing with large marketgroups.



zOpportunities

{Economic integration creates large massmarkets for the marketer

zMarket barriers

{ The initial aim of a multinational market is toprotect businesses that operate within itsborders.

z Reciprocity{If a country does not open its market to an EU

firm, it cannot expect to have access to the EU

market.

Strategic Implications for Marketing in

Europe



Marketing Mix Implications

zIn the past, companies often charged

different prices in different Europeanmarkets.

zAs long as products from lower-pricedmarkets could not move to higher-

priced markets, such differential priceschemes worked.{Beddedas Shower Gel



zIn addition to initiating uniform pricing

policies, companies are reducing thenumber of brands they produce to

focus advertising and promotionefforts.

Marketing Mix Implications



The Commonwealth of Independent

States

z The remaining 12 republics of the

former USSR after the aborted coupagainst Gorbachev and the formation

of the Baltic States.z The CIS is a loose economic and

political alliance with open bordersbut no central government.



z The 12 members of the CIS share a

common history of central planning,and their close cooperation could

make the change to a marketeconomy less painful, but differencesover economic policy, currencyreform, and control of the military maybreak them apart.

The Commonwealth of Independent

States



Commonwealth of Independent States

(CIS)

zExhibit 10.6



North American Free Trade

Agreement

zNAFTA was ratified and became effective in

1994, a single market of 360 million peoplewith a $6 trillion GNP emerged.

zNAFTA requires the three countries toremove all tariffs and barriers to trade over15 years, but each country will have its own

tariff arrangements with nonmembercountries.



z The elimination of trade and investment barriersamong Canada, Mexico, and the United Statescreates one of the largest and richest markets inthe world.

z NAFTA has its detractors, and it is safe to say that

there has been constant turmoil since its inception.{1996 presidential election

z J ob losses have not been as drastic as once

feared, in part because companies haveestablished maquiladora plants in anticipation of the benefits from NAFTA.

North American Free Trade

Agreement



Southern Cone Free Trade Area

(Mercosur)

zMercosur (including Argentina, Bolivia,

Brazil, Chile, Paraguay, and Uruguay)is the second-largest common-market

agreement in the Americas afterNAFTA.

zSince its inception, Mercosur hasbecome the most influential andsuccessful free trade area in South

America.



z The success can be attributed to the

willingness of the region’sgovernments to confront some verytough issues caused by dissimilar

economic policies.zNegotiations have been under way

since 1999 for a free trade agreementbetween the EU and Mercosur, thefirst region-to-region free trade accord.

Southern Cone Free Trade Area

(Mercosur)



Latin American Economic

CooperationzAlmost every country in Latin America

has either signed some type of tradeagreement or is involved innegotiations.

zLatin American Integration AssociationzCaribbean Community and Common

Market (CARICOM)zNAFTA to FTAA or SAFTA?



Association of Southeast Asian

NationszGoals of the ASEAN{

Economic integration and cooperation throughcomplementary industry programs{Preferential trading, including reduced tariff and

nontariff barriers{

Guaranteed member access to markets throughoutthe region{Harmonized investment incentives



z Four major events account for the vigorous

economic growth of the ASEAN countries:{ The ASEAN governments’ commitment to deregulation,

liberalization, and privatization of their economies.

{ The decision to shift their economies from commodity based

to manufacturing based.{ The decision to specialize in manufacturing components in

which they have a comparative advantage.

{ J apan’s emergence as a major provider of technology and

capital necessary to upgrade manufacturing capability anddevelop new industries.

Association of Southeast Asian

Nations



Far Eastern Market Group

z Insert Exhibit 10.9



Asia-Pacific Economic CooperationzFormed in 1989

zAPEC provides a formal structure for themajor governments of the region, includingthe U.S. and Canada, to discuss their

mutual interests in open trade andeconomic collaboration.

z Includes all major economies of the region

and the most dynamic, fastest-growingeconomies in the world.



zCommon goal and commitment:

{ To open trade{ To increase economic collaboration

{ To sustain regional growth and development

{ To strengthen the multilateral trading system

{ To reduce barriers to investment and tradewithout detriment to other economies.

Asia-Pacific Economic Cooperation



Africaz There has been little actual economic

integration because of the politicalinstability that has characterized Africa inrecent decades and the unstable

economic base on which Africa has hadto build.



z The Economic Community of West African

States (ECOWAS) and the Southern AfricanDevelopment Community (SADC) are the twomost active regional cooperative groups.

{ECOWAS continues to be plagued with financialproblems, conflict within the group, and inactivity on thepart of some members.

z The Southern African DevelopmentCommunity is the most advanced and viable of Africa’s regional organizations.

Africa



Middle East

z The Middle East has been less

aggressive in the formation of successfully functioning multinational

market groups.zA long history of border disputes and

persisting ideological differences will

have to be overcome.



zEconomic Cooperation Organization

(ECO)zCreation of the Organization of the

Islamic Conference (OIC){Represents 60 countries and over 650 million

Muslims worldwide

{ The member countries’ vast natural resources,

substantial capital, and cheap labor force areseen as the strengths of the OIC.

Middle East



Regional Trading Groups and Emerging

Markets

z Two opposing views prevailed regarding

the direction of global trade in the future.{ The world is dividing into major regional trading

groups such as the European Union, NAFTA,

and the ASEAN Free Trade Area that are nowand will continue to be the major markets of thefuture.

{Global economic power may be shifting awayfrom the traditional industrial markets to thedeveloping world and its emerging markets.



zMany experts predict that over the next 50

years the majority of global economicgrowth will be in the developing worldprincipally in those countries identified as

emerging markets.

Regional Trading Groups and Emerging

Markets



Summary

zMarketing efficiency is effected

through the development of massmarkets, encouragement of

competition, improvement of personalincome, and various psychologicalmarket factors.



zProduction efficiency derives from

specialization, mass production for massmarkets, and the free movement of thefactors of production.

zRegardless of the location of the marketer,multinational market groups provide great

opportunity for the creative marketer whowishes to expand volume.

Summary (continued)



Summary (continued)zMarket groupings make it

economically feasible to enter newmarkets and to employ newmarketing strategies.

zMarket groupings intensifycompetition by protectionism within a

market group but may foster greaterprotectionism between regional

markets.



zMercosur and ASEAN+3 suggest the

growing importance of economiccooperation and integration.

Summary (continued)

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Chapter10 Multinational Market Regions and Market Group1