The evolution and growth of multinational market regions — those groups of countries that seek mutual economic benefit from reducing interregional trade and tariff barriers — are the most important global trends today. Organizational form varies widely among market regions, but the universal goals of multinational cooperation are economic benefits for the participants and the associated peace. The benefits are clear for consumers; however, global companies face richer and more intense competitive environments. Multinational market regions – those groups of countries that seek mutual economic benefit from reducing trade and tariff barriers. The world is awash in economic cooperative agreements as countries look for economic alliances to expand access to free markets. WTO – 153 members and 30 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.
Exhibit 10.2 illustrates the European economic area: including the EU, EFTA, and Associates. As you can see, when Austria, Finland, and Sweden joined the EU in 1995, only Iceland, Liechtenstein, Norway, and Switzerland remained in EFTA.
Of all the multinational market groups, none is more secure in its cooperation or more important economically than the European Union. Exhibit 10.3 demonstrates the timeline dating from 1951 for the European Coal and Steel Industry to the Monetary Union in 2007.
The EMU, a provision of the Maastricht Treaty, established the parameters of the creation of a common currency for the EU, the euro, and established a timetable for its implementation. In 2002, a central bank was established, conversion rates were fixed, circulation of euro banknotes and coins was completed and the legal tender status of participating members’ banknotes and coins was canceled. Exhibit 10.4 describes the various denominations of the Euro: Notes: There are seven euro notes in different colors and sizes, denominated in 500, 200, 100, 50, 20, 10 and 5 euros. Coins: There are eight euro coins, denominated in 2 and 1 euros, then 50, 20, 10, 5, 2, and 1 cent. Every coin will carry a common European face—a map of the European Union against a background of transverse lines to which are attached the stars of the European flag. On the obverse, each member state will decorate the coins with their own motifs, for example, the King of Spain or some national hero. The graphic symbol for the euro was inspired by the Greek letter epsilon, in reference to the cradle of European civilization and to the first letter of the word Europe. It looks like an E with two clearly marked, horizontal parallel lines across it. The parallel lines are meant to symbolize the stability of the euro. The official abbreviation is “EUR.”
Similar to Exhibit 10.1, Exhibits 10.5 illustrates the same information for the 12 republics of the former USSR, known as the Newly Independent States (NIS). regrouped into the Commonwealth of Independent States. Russia ranks the highest is population, GDP, as well as both imports and exports of goods and services. While the three Slavic republics of Russia, Ukraine, and Belarus have interests and history in common, as do the five Central Asian republics, the ties between these two core groups of the CIS are tenuous and stem mainly from their former Soviet membership.
Exhibit 10.6 lists the loosely defined African Union countries (except Morocco). In addition, an estimated 200 other economic arrangements exist between African countries.
Exhibit 10.6 lists the loosely defined African Union countries (except Morocco). In addition, an estimated 200 other economic arrangements exist between African countries.
Introduction 10• Multinational market regions – those groups of countries that seek mutual economic benefit from reducing trade and tariff barriers• The world is awash in economic cooperative agreements as countries look for economic alliances to expand access to free markets – WTO – 153 members and 30 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 Roy Philip 2
Overview 10• The reason for economic union• Patterns of international cooperation• The evolution of the European Union• Strategic implications for marketing in Europe• Evolving patterns of trade as eastern Europe and the former Soviet states embrace the free-market system• The trade linkage of NAFTA and South America and its regional effects• The development of trade within the Asia-Pacific Rim Roy Philip 3
Global Perspective – Might Free Trade 10 Bring Peace to the Middle East? • Just like NAFTA and EU, can there be a MEU (Middle Eastern Union) in the war-torn Middle East? • Jerusalem is important to Christians (associations with Christ), Jews (center of their religion), and Muslims (an important spiritual place) • Religious tourism alone brought in $3.2 billion in revenues in 2000 • Middle East has a lot of potential. Jared Diamond, Pulitzer Prize winner, believes that the Middle East was the cradle of civilization and only one can imagine what free trade in the area would produce Roy Philip 4
La Raison d’Etre 10• Successful economic union – Requires favorable economic, political, cultural, and geographic factors as a basis for success• The advantages of economic union must be clear-cut and significant – Benefits must greatly outweigh the disadvantages before nations forgo any part of their sovereignty• 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 Roy Philip 5
Economic Factors 10• Markets are enlarged through – Preferential tariff treatment for participating members – Common tariff barriers against outsiders• Nations with complementary economic bases – Least likely to encounter frictions in the development and operation of a common market unit• 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 Roy Philip 6
Political Factors 10• State sovereignty – One of the most cherished possessions of any nation – Relinquished only for a promise of significant improvement of the national position through cooperation• The importance of political unity to fully achieve all the benefits of economic integration – Has driven EC countries to form the European Union Roy Philip 7
Geographic and Temporal Proximity 10 and Cultural Factors • Geographic and temporal proximity – Recent research demonstrates that 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 Roy Philip 8
Patterns of 10Multinational Cooperation (1 of 3) • Regional cooperation groups – Governments agree to participate jointly to develop basic industries beneficial to each economy • Free trade area – An agreement between two or more countries • To reduce or eliminate customs duties and nontariff trade barriers among partner countries • Members maintain individual tariff schedules for external countries Roy Philip 9
Patterns of 10Multinational Cooperation (2 of 3) • Customs union – Enjoys free trade area’s reduced or eliminated internal tariffs – Adds a common external tariff on products imported from countries outside the union • Common market – 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 Roy Philip 10
Patterns of 10Multinational Cooperation (3 of 3) • Political union – Involves complete political and economic integration, either voluntary or enforced – Commonwealth – a voluntary organization that provides for the loosest possible relationship classified as economic integration – Two new political unions came into existence in the 1990s • The Commonwealth of Independent States (CIS) • The European Union (EU) Roy Philip 11
Global Markets and 10Multinational Market Groups• 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 – Enhanced global competition Roy Philip 12
Global Markets and 10Multinational Market Groups• Europe• Eastern Europe and the Baltic States• Common wealth of Independent States (CIS)• Africa• Middle East Roy Philip 13
European Market Regions 10 Fundamental Market MetricsExhibit 10.1 Roy Philip 14
The European Economic Area 10Exhibit 10.2 Roy Philip 15
From the European Coal and Steel 10 Community to Monetary UnionExhibit 10.3 Roy Philip 17
European Integration 10• From its beginning, the EU has made progress toward achieving the goal of complete economic integration and, ultimately, political union• But it had to deal with language and cultural differences, individual national interests, political differences, and centuries-old restrictions designed to protect local national markets• Through it all, the EU has come out successful• Although complete integration has not been achieved, the final outcome of full economic and political integration seems more certain now Roy Philip 18
European Union (1 of 2) 10• Three legal instruments: – Regulations binding the member states directly and having the same strength as national laws – Directives also binding the member states but allowing them to choose the means of execution, and – Decisions addressed to a government, an enterprise, or an individual binding the parties named• Over the years, the EU has gained an increasing amount of authority over its member states Roy Philip 19
European Union (2 of 2) 10• European Union institutions are: – The European Commission (supervises executions of laws and policies) – The Council of Ministers (decision making body) – The European Parliament (amend and adopt legislation; also has extensive budgetary powers) – The European Court of Justice (judicial – passing judgments on the interpretation of points on the EU law) Roy Philip 20
Economic and 10 Monetary Union (EMU)• It established the parameters of the creating of a common currency for the EU, the “Euro” and established a timetable for its implementation• In 2002, a central bank was established, conversion rates were fixed, circulation of Euro bank notes and coins was completed and the legal tender status of participating members’ bank notes and coins was cancelled• Beginning January 1, 2001, Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxemburg, the Netherlands, Portugal, and Spain employed the Euro Roy Philip 21
Expansion of the 10 European Union• http://europa.eu/abc/european_countries/eu_me mbers/index_en.htm - shows the member states of the European Union• Ten new countries were added in 2004 and as of today the EU boasts 27 nations with 4 more awaiting membership• In 2007, the EU celebrated its golden anniversary and most would agree that it has been a tremendous success, delivering peace and prosperity to hundreds of millions of people that previously had lived with frequent wars and accompanying economic and social hardships Back Roy Philip 23
Eastern Europe 10 and the Baltic States• Eastern Europe and the Baltic states, satellite nations of the former Soviet Union, have moved steadily toward establishing postcommunist market reforms• New business opportunities are emerging almost daily, and the region is described as anywhere from chaotic with big risks to an exciting place with untold opportunities• Countries in both these regions continue to adjust to the political, social, and economic realities of changing from the restrictions of a Marxist-socialist system to some version of free markets and capitalism Roy Philip 25
Eastern Europe 10• It is dangerous to generalize about eastern Europe because each of the countries has its own economic problems and is at a different stage in its evolution from a socialist to a market-driven economy• Most eastern European countries are privatizing state- owned enterprises, establishing free market pricing systems, relaxing import controls and wrestling with inflation• The Czech Republic has fared better than other eastern European countries; Yugoslavia has been plagued with ethnic violence; some countries have become members of the Organization for Economic Cooperation and Development (OECD) Roy Philip 26
The Baltic States 10• Estonia, Latvia, and Lithuania are prime examples of the difference that right policies can make. All three countries started off with roughly the same legacy of inefficient industry and Soviet-style command economies• Since 1991, Estonia’ s economic reform policy has led to a liberalized, nearly tariff-free, open-market economy• The most significant hurdle for U.S. trade and investment has been government bureaucracy, corruption, and organize crime, found in Latvia and Lithuania• All three countries are members of WTO and, as of 2004, EU members Back Roy Philip 27
The Commonwealth 10of Independent States (CIS)• Formed after aborted coup against Gorbachev and dissolution of USSR – Included the remaining 12 republics after the formation of the Baltic States• The CIS is a loose economic and political alliance with open borders but no central government• The 12 members of the CIS share a common history of central planning – Their close cooperation could make the change to a market economy less painful – Differences over economic policy, currency reform, and control of the military may break them apart Roy Philip 28
Commonwealth 10 of Independent States (CIS)Exhibit 10.5 Back Roy Philip 29
Africa 10• Little actual economic integration – Characterized by political instability in recent decades – Unstable economic base• All the countries on the continent (save Morocco) have joined a loosely defined African Union• The efforts of the UN to bring about economic integration has been hampered by governmental inexperience, undeveloped resources, labor problems, and chronic product shortage Roy Philip 30
Regional Groups - Africa 10• Economic Community of West African States (ECOWAS) – 15-nation group – Plagued with financial problems, conflict within the group, and inactivity• Southern African Development Community (SADC) – Most advanced and viable of Africa’s regional organizations• East African Community (EAC) Roy Philip 31
African Union Countries and Other Market Groups Fundamental 10 Market MetricsExhibit 10.6 Back Roy Philip 32
African Union Countries and Other Market Groups Fundamental 10 Market Metrics (continued)Exhibit 10.6 Back Roy Philip 33
Middle East 10• Middle East has been less aggressive in the formation of successfully functioning multinational market groups – A long history of border disputes and persisting ideological differences will have to be overcome• Greater Arab Free Trade Area (GAFTA)• Economic Cooperation Organization (ECO)• Creation of the Organization of the Islamic Conference (OIC) – Represents 60 countries and over 650 million Muslims worldwide – Member countries’ vast natural resources, substantial capital, and cheap labor force are seen as the strengths of the OI Roy Philip 34
Implications of 10 Market Integration• Strategic Implications• Opportunities• Market Barriers Roy Philip 35
Strategic Implications 10• Production, financing, labor, and marketing decisions are affected by the remapping of the world into market groups• World competition will continue to intensify as businesses become stronger and more experienced in dealing with large market groups• Despite the problems and complexities of dealing with the new markets, the overriding message to the astute international marketer continues to be opportunity and profit potential Roy Philip 36
Opportunities 10• Large markets are particularly important to businesses accustomed to mass production and mass distribution because of the economies of scale and marketing efficiencies that can be achieved• Most multinational groups have coordinated programs to foster economic growth as part of their cooperative efforts so as to take advantage of increasing purchasing power, improving regional infrastructure, and fostering economic development Roy Philip 37
Market Barriers 10• The initial aim of a multinational market is to protect businesses that operate within its borders• However, companies willing to invest in production facilities in multinational markets may benefit from protectionist measures because these companies become part of the market, putting exporters in a considerably weaker position• The major problem for small companies may be adjusting to the EU standards Roy Philip 38
Market Metrics 10• Three tables representing the fundamental metrics reflecting the size and character of markets in the eight most populous countries in the greater region of Europe, Africa, and the Middle East• Exhibit 10.7 presents standards of living across the eight countries• Exhibit 10.8 compares the infrastructure of these eight countries• Exhibit 10.9 enumerates the consumption patterns in these eight countries Next Roy Philip 39
Standard of Living in the Eight 10 most populous countriesExhibit 10.7 Back Roy Philip 40
Infrastructures of the Eight 10 most populous countriesExhibit 10.8 Back Roy Philip 41
Consumption Patterns in the 10Eight most populous countriesExhibit 10.9 Back Roy Philip 42
Marketing Mix Implications 10 • In the past, companies often charged different prices in different European markets such as Colgate Palmolive • As long as products from lower-priced markets could not move to higher-priced markets, differential price schemes worked as in the case of Badedas Shower Gel • Companies initiating uniform pricing policies are reducing the number of brands to focus on advertising and promotion efforts as with Nestle and Unilever Roy Philip 43
Summary (1 of 2) 10• 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 – Free movement of the factors of production• Multinational market groups provide great opportunity for the creative marketer Roy Philip 44
Summary (2 of 2) 10• Market groupings make it economically feasible to enter new markets and to employ new marketing strategies• Market groupings intensify competition by protectionism within a market group but may foster greater protectionism between regional markets• Mercosur and ASEAN+3 suggest the growing importance of economic cooperation and integration Roy Philip 45