multinational market regions and market groups chapter 10 mcgraw-hill/irwin© 2005 the mcgraw-hill...

Multinational Market Regions and Market Groups

Chapter 10

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

Chapter Learning Objectives

1. The reasons for economic union1. The reasons for economic union

2. Patterns of international cooperation2. Patterns of international cooperation

3. The evolution of the European Community to the European Union

3. The evolution of the European Community to the European Union

4. Strategic implications for marketing in Europe4. 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

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

6. The trade linkage of NAFTA and South America and its regional effects

7. The development of trade within the Asia-Pacific Rim

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.

Traits of Successful Economic Unions

1. Economic Compatibility (similar economic systems)

2. Political Compatibility (similar political systems)

3. Cultural Compatibility4. Geographic factors5. Weakness in some must be balanced

by strengths in others

Patterns of Multinational Cooperation

1. Regional Cooperation Groups2. Free Trade Areas3. Customs Unions4. Common Markets and

Economic Unions5. Political Unions

• There are five fundamental groupings for regional economic integration as follows:

• 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:

• 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)

• 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

• Member countries can have different trade policies for other external countries

Customs Unions

• Examples of Customs Unions: East African Customs Union between Ethiopia, Kenya, Sudan, Tanzania, Uganda, and Zambia

• 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

• 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.

• 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

• 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

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• 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 group of countries that have agreed to complete political and economic integration and cooperation among members

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

• Many Multinational Market Groups have emerged due to recent trends that include:

• Many Multinational Market Groups have emerged due to recent trends that include:

• Various examples of Multinational Market Groups are provided next

• Various examples of Multinational Market Groups are provided next

North American Free-Trade Area (NAFTA)

CanadaCanada

United StatesUnited States

MexicoMexico

NAFTA Rules of Origin

Tariff shift ruleTariff shift rule • Non-NAFTA imports undergo sufficient manufacture or processing to become products that can qualify under a different tariff classification.

• Non-NAFTA imports undergo sufficient manufacture or processing to become products that can qualify under a different tariff classification.

Value-content ruleValue-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.

• 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)

PakistanPakistan

IranIran

TurkeyTurkey

AzerbaijanAzerbaijan

TurkmenistanTurkmenistan

UzbekistanUzbekistan

Central European Free-Trade Area (CEFTA)

PolandPoland

HungaryHungary

SlovakiaSlovakia

Czech RepublicCzech Republic

SloveniaSlovenia

RomaniaRomania

Southern Cone Free Trade Area (MERCOSUR)

ArgentinaArgentina

BoliviaBolivia

BrazilBrazil

ChileChile

ParaguayParaguay

UruguayUruguay

Latin American Integration Association (LAIA)

ArgentinaArgentina

BoliviaBolivia

BrazilBrazil

ChileChile

ColumbiaColumbia

EcuadorEcuador

MexicoMexico

ParaguayParaguay

PeruPeru

UruguayUruguay

VenezuelaVenezuela

Andean Common Market (ANCOM)

BoliviaBolivia

ColumbiaColumbia

EcuadorEcuador

PeruPeru

VenezuelaVenezuela

PanamaPanama

Central America Common Market (CACM)

GuatemalaGuatemala

Costa RicaCosta Rica

NicaraguaNicaragua

HondurasHonduras

Caribbean Community and Common Market (CARICOM)

AntiguaAntigua

BarbudaBarbuda

BelizeBelize

DominicaDominica

GrenadaGrenada

GuyanaGuyana

JamaicaJamaica

MontserratMontserrat

St. Kitts-NevisSt. Kitts-Nevis

AnguillaAnguilla

St. LuciaSt. Lucia

St. VincentSt. Vincent

Trinidad-TobagoTrinidad-Tobago

Association of Southeast Asian Nations (ASEAN)

BruneiBrunei

IndonesiaIndonesia

LaosLaos

MalaysiaMalaysia

MyanmarMyanmar

PhilippinesPhilippines

SingaporeSingapore

ThailandThailand

VietnamVietnam

Association of Southeast Asian Nations (ASEAN) + 3

BruneiBrunei

IndonesiaIndonesia

LaosLaos

MalaysiaMalaysia

MyanmarMyanmar

PhilippinesPhilippines

SingaporeSingapore

ThailandThailand

VietnamVietnam

JapanJapan

S. KoreaS. Korea

ChinaChina

Economic Cooperation Organization (ECO)

PakistanPakistan

IranIran

TurkeyTurkey

AzerbaijanAzerbaijan

TurkmenistanTurkmenistan

UzbekistanUzbekistan

Asia-Pacific Economic Cooperation (APEC)

AustraliaAustralia

BruneiBrunei

CanadaCanada

ChileChile

ChinaChina

Hong KongHong Kong

IndonesiaIndonesia

JapanJapan

South KoreaSouth Korea

MalaysiaMalaysia

MexicoMexico

New ZealandNew Zealand

Papua New GuineaPapua New Guinea

PeruPeru

PhilippinesPhilippines

Russia Russia

SingaporeSingapore

TaiwanTaiwan

Thailand Thailand

U.S.A.U.S.A.

VietnamVietnam

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

Economic Community of West African States (ECOWAS)

BeninBenin

Burkina FasoBurkina Faso

Cote d’ IvoireCote d’ Ivoire

GambiaGambia

GhanaGhana

GuineaGuinea

Guinea-BissauGuinea-Bissau

LiberiaLiberia

MaliMali

MauritaniaMauritania

NigerNiger

NigeriaNigeria

Southern African Development Community (SADC)

AngolaAngola

BotswanaBotswana

LesothoLesotho

NamibiaNamibia

MalawiMalawi

MauritiusMauritius

GabonGabon

MaliMali

MauritaniaMauritania

NigerNiger

SenegalSenegal

TogoTogo

East African Customs Union

EthiopiaEthiopia

KenyaKenya

SudanSudan

TanzaniaTanzania

UgandaUganda

ZambiaZambia

West Africa Economic Community

SenegalSenegal

TogoTogo

Burkina FasoBurkina Faso

Cote d’IvoireCote d’Ivoire

Mali Mali

Mauritania Mauritania

NigerNiger

Customs and Economic Union of Central Africa (CEUCA)

CameroonCameroon

Central African RepublicCentral African Republic

GabonGabon

People’s Republic of CongoPeople’s Republic of Congo

Maghreb Economic Community

AlgeriaAlgeria

LibyaLibya

MoroccoMorocco

TunisiaTunisia

Arab Common Market

IraqIraq

KuwaitKuwait

JordanJordan

SyriaSyria

EgyptEgypt

Maghreb Economic Community

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

AlgeriaAlgeria

LibyaLibya

MoroccoMorocco

TunisiaTunisia

Arab Common Market

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

IraqIraq

KuwaitKuwait

JordanJordan

SyriaSyria

EgyptEgypt

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