Multinational Market Regions and Market Groups Chapter 10 McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. PowerPoint presentation prepared by: Professor Rajiv Mehta Associate Professor of Marketing New Jersey Institute of Technology Newark, N.J.

Chapter Learning Objectives 1. The reasons for economic union 2. Patterns of international cooperation 3. The evolution of the European Community to the European Union 4. Strategic implications for marketing in Europe

Chapter Learning Objectives 5. Evolving patterns of trade as Eastern Europe and the former Soviet states embrace the free-market system 6. The trade linkage of NAFTA and South America and its regional effects 7. The development of trade within the Asia- Pacific Rim

Introduction 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 goal of multinational cooperation is economic benefit for the participants Political and social benefits sometimes accrue, but the dominant motive for affiliation is economic. The world is awash in economic cooperative agreements as countries look for economic alliances to expand access to free markets.

Important Multinational Market Regions EU- the world’s largest multinational market region NAFTA APEC ASEAN

Traits of Successful Economic Unions 1.Economic Compatibility (similar economic systems) 2.Political Compatibility (similar political systems) 3.Cultural Compatibility 4.Geographic factors Weakness in some must be balanced by strengths in others

Patterns of Multinational Cooperation 1.Regional Cooperation Groups 2.Free Trade Areas 3.Customs Unions 4.Common Markets 5.Political Unions There are five fundamental groupings for regional economic integration as follows: Viewed on a spectrum, each requires greater levels of cooperation among member nations and include:

Regional Cooperation Groups A group of countries that have agreed to participate in basic industries beneficial to each or jointly develop joint ventures that benefit both countries, e.g., Colombia and Venezuela built a hydroelectric dam on the Orinico river which both share

Free Trade Areas Examples of Free Trade Areas: NAFTA, and European Free Trade Area (EFTA) between Iceland, Liechtenstein, Norway, and Switzerland A group of countries that have agreed to reduce drastically (but not eliminate) all trade barriers such as customs duties and non- tariff barriers (standards) Member countries can have different trade policies for other external countries

The South Asian Free Trade Area (SAFTA) is an agreement reached on 6 January 2004 at the 12th SAARC summit in Islamabad, Pakistan. It created a free trade area of 1.6 billion people in Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka (as of 2011, the combined population is 1.8 billion people). The seven foreign ministers of the region signed a framework agreement on SAFTA to reduce customs duties of all traded goods to zero by the year th SAARC summitIslamabadPakistanfree trade area AfghanistanBangladeshBhutanIndia MaldivesNepalPakistanSri Lankacustoms dutiesgoods

Customs Unions Examples of Customs Unions: between France and Monaco In addition to drastically reducing trade barriers from FTA identified previously, a group of countries that have agreed to eliminate customs duties levied among member countries Also establishes common external barriers like imposing a common tariff on goods imported from countries out of the association.

Common Markets Latin America boasts three common markets: the Central American Common Market (CACM), the Andean Common Market, and the Southern Cone Common Market (MERCOSUR). The three have roughly similar goals and seek eventual full economic integration. In addition to drastically reducing trade barriers, and eliminating customs duties levied from FTA and Customs Unions identified previously, a common market is a group of countries that allow:  the free flow of capital and labor (engineers, doctors, and lawyers can work without recertification) among members  a common currency  a common central bank; and  common policies on transportation, agriculture, social services, welfare, and taxes  Lacks only political unity to become a political union. In addition to drastically reducing trade barriers, and eliminating customs duties levied from FTA and Customs Unions identified previously, a common market is a group of countries that allow:  the free flow of capital and labor (engineers, doctors, and lawyers can work without recertification) among members  a common currency  a common central bank; and  common policies on transportation, agriculture, social services, welfare, and taxes  Lacks only political unity to become a political union.

Political Unions Examples of Political Unions: COMECON (Council for Mutual Economic Assistance), and U.S.S.R., but it no longer exists The highest level of cooperation among member countries A group of countries that have agreed to complete political and economic integration and cooperation among members

A commonwealth of nations is a voluntary organization providing for the loosest possible relationship that can be classified as economic integration. E.g. The British commonwealth Based on economic history and tradition

Global Markets and Multinational Market Groups 1.The globalization of markets 2.The restructuring of Eastern Europe into independent market-driven economies 3.The dissolution of the Soviet Union into independent states and 4.The worldwide trend toward economic cooperation 5.Enhanced global competition Many Multinational Market Groups have emerged due to recent trends that include: Various examples of Multinational Market Groups are provided next

North American Free-Trade Area (NAFTA) Canada United States Mexico

NAFTA Rules of Origin Tariff shift rule Non-NAFTA imports undergo sufficient manufacture or processing to become products that can qualify under a different tariff classification. Value-content rule A set percentage of the value of the good must be North American (usually coupled with a tariff classification shift requirement). Some goods are subject to the value-content rule only when they fail to pass the tariff classification test because of non-NAFTA inputs.

Economic Cooperation Organization (ECO) Pakistan Iran Turkey Azerbaijan Turkmenistan Uzbekistan

Central European Free-Trade Area (CEFTA) Poland Hungary Slovakia Czech Republic Slovenia Romania

Southern Cone Free Trade Area (MERCOSUR) Argentina Bolivia Brazil Chile Paraguay Uruguay

Latin American Integration Association (LAIA) Argentina Bolivia Brazil Chile Columbia Ecuador Mexico Paraguay Peru Uruguay Venezuela

Andean Common Market (ANCOM) Bolivia Columbia Ecuador Peru Venezuela Panama

Central America Common Market (CACM) Guatemala Costa Rica Nicaragua Honduras

Caribbean Community and Common Market (CARICOM) Antigua Barbuda Belize Dominica Grenada Guyana Jamaica Montserrat St. Kitts-Nevis Anguilla St. Lucia St. Vincent Trinidad-Tobago

Association of Southeast Asian Nations (ASEAN) Brunei Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam

Association of Southeast Asian Nations (ASEAN) + 3 Brunei Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam Japan S. Korea China

Economic Cooperation Organization (ECO) Pakistan Iran Turkey Azerbaijan Turkmenistan Uzbekistan

Asia-Pacific Economic Cooperation (APEC) Australia Brunei Canada Chile China Hong Kong Indonesia Japan South Korea Malaysia Mexico New Zealand Papua New Guinea Peru Philippines Russia Singapore Taiwan Thailand U.S.A. Vietnam

© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Economic Community of West African States (ECOWAS) Benin Burkina Faso Cote d’ Ivoire Gambia Ghana Guinea Guinea-Bissau Liberia Mali Mauritania Niger Nigeria

Southern African Development Community (SADC) Angola Botswana Lesotho Namibia Malawi Mauritius Gabon Mali Mauritania Niger Senegal Togo

East African Customs Union Ethiopia Kenya Sudan Tanzania Uganda Zambia

West Africa Economic Community Senegal Togo Burkina Faso Cote d’Ivoire Mali Mauritania Niger

Customs and Economic Union of Central Africa (CEUCA) Cameroon Central African Republic Gabon People’s Republic of Congo

Maghreb Economic Community Algeria Libya Morocco Tunisia

Arab Common Market Iraq Kuwait Jordan Syria Egypt

Maghreb Economic Community McGraw-Hill/Irwin© 2004 The McGraw-Hill Companies, Inc. All rights reserved. Algeria Libya Morocco Tunisia

Arab Common Market McGraw-Hill/Irwin© 2004 The McGraw-Hill Companies, Inc. All rights reserved. Iraq Kuwait Jordan Syria Egypt

Future Multinational Trade Groups 1.United States/Japan 2.Hong Kong/Taiwan 3.Asia-Pacific Rim Countries 4.Hong Kong/Taiwan/Coastal Provinces of Southern China 5.Western Hemisphere (North and South America) F.T.A. 6.Transatlantic Free Trade Area (U.S.A. & EU) 7.NAFTA including Central America 8.SAFTA

Implications of Market Integration –Strategic Implications –Opportunities –Market Barriers Marketing Mix Implications