Global Marketing Management

Multinational Strategic Alliances

MKTG 3231-001Spring 2014

Mrs. Tamara L. Cohen

Class #15

• Multinational Market Region

• Single European Act

• Maastricht Treaty

• Economic & Monetary Union

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KEY TERMS

KEY CONCEPTS

Free Trade Area removes all barriers to trade among members; each nation has its own barriers against non-members.

Customs Union = Free Trade Area + common external trade policy

Common Market = Customs Union + free movement of labor & capital

Economic Union = Common Market + coordinated economic policies

Political Union = Economic Union + coordinated external economic & political policies

Commonwealth = voluntary, loose association

Building Blocks of Regional Integration

Free Trade Area =

Customs Union =

Common Market =

Economic Union =

Political Union =

all barriers to trade among members removed

+ common external trade policy

+ free movement of labor & capital

+ coordinated economic policies

+ coordinated external economic & political policies

GOAL= higher living standards through increased cross-border trade and investment.

Regional Economic Integration(Regionalization)

Multinational Market Regions

• Evolution & growth of MMRs is most important global trend today

• Universal goal is economic benefits for participants + associated peace between and within countries

• UN includes efforts towards mutual economic development

• WTO wholly dedicated to making trade among nations more efficient

World Trade Organization

members & observers

RECIPE forsuccessful economic

unionsMix together, using good-quality ingredients:

1. Economic Factors

2. Political Factors

3. Geographic & Temporal Proximity

4. Cultural Factors

1. Economic Factors• Markets enlarged through tariffs

– preferential tariff treatment for participating members– common tariff barriers against outsiders

• Nations with complementary economic bases – least likely to encounter frictions in development &

operation of a common market unit• Economic union must have agreements &

mechanisms in place to settle economic disputes

• Failure of Latin American Free Trade Association (LAFTA) – result of economically stronger members not allowing for

needs of weaker ones

2. Political Factors

• State sovereignty – one of most cherished possessions of any nation – relinquished only for promise of significant

improvement of national position through cooperation

• Importance of political unity to fully achieve all benefits of economic integration – driven EC countries to form the European Union

3. Geographic & Temporal

Proximity• Recent research shows that differences across

time zones are more important than physical distances

• Trade travels more easily in north-south directions than it did in ancient times

• Countries that are widely separated geographically have major barriers to overcome in attempting to join economically

4. Cultural Factors

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

USA has bilateral free trade agreements with Australia, Bahrain, Chile, Israel, Jordan, Morocco, Singapore

USA has multilateral agreements: NAFTA & DR-CAFTA

(Cultural similarities not always immediately apparent.)

Fear of being left out …

Countries fear not joining a vital regional market group will doom

them to being left on the sidelines

of global economic activity.

Trade causes Peace?

• Democracies cooperate more and fight less Solomon W. Polacheck, 1997

• “Free Trade is God’s diplomacy. There is no other certain way of uniting people in the bonds of peace.” Richard Cobden, 1857

• Dell Theory of Conflict Prevention

• “I believe that as time and progress go on there

(East Asia and China), the chance for a really disruptive event goes down exponentially.” Michael Dell

Global Markets & MMRs

Market potential should be viewed in context of regions of world, rather than country by country– globalization of markets– restructuring of Eastern European bloc into

independent market-driven economies– Soviet Union dissolving into independent

states– worldwide trend toward economic cooperation– enhanced global competition

EFTA European Free Trade Association

– formed by Britain for those European nations not willing to join EEC but wanting to participate in FTA

– will most probably dissolve as members join either the EEA or the EU

EEA European Economic Area

= single market with free movement of goods, services, and capital

– governed by special Council of Ministers composed of representatives from EEA member nations

A Brief History of European Integration

A Brief History of European Integration

European Union(EU)

• EU evolved after 1,000 years of separatism• 1957 Treaty of Rome established EEC• EU is world’s largest and most secure / successful

of all multinational marketing groups, in terms of cooperation and economic importance

• € (EURO) = single currency of EU since Jan.1, 2002

• 18 out of 28 EU countries use the €• Strategic implications for marketing in Europe

European Union (EU)

Bumps along the way - traditional protectionism:

German British poultry

beer Italian pasta

Irish eggs & poultry

French wine

European

Economic Area

Exhibit 10.2

The Commonwealth of Independent

States (CIS)• formed after aborted coup against Gorbachev &

dissolution of USSR – included remaining 12 republics after Baltic States formed

• CIS is loose economic & political alliance with open borders but no central government

• 12 members of CIS share common history of central planning– their close cooperation could make change to market

economy less painful– differences over economic policy, currency reform, & control

of military may break them apart

Commonwealth of Independent States

NAFTANAFTA = Canada + Mexico + USA– 1994 ratified and became effective

– 2008 all tariffs & barriers dropped

– single market of 360 million people, $6 trillion GNP i.e. one of largest and richest markets in world

– improves all (most?) aspects of doing business within North America

– job losses not as drastic as once feared, in part because maquiladora plants have been set up in anticipation of benefits from NAFTA

Latin American Economic

Cooperation

• MERCOSUR = Mercado Común del Sur = Argentina + Brazil + Paraguay + Uruguay

• 2nd largest common-market agreement in the Americas

• most influential & successful FTA in South America• founded in 1991

Free trade agreement between EU and MERCOSUR • negotiations since 1999 for 1st region-to-region free

trade accord

MERCOSUR(MERCOSUL)

Latin American Economic

Cooperation• DR-CAFTA = Costa Rica + Dominican Republic + El Salvador +

Guatemala + Honduras + Nicaragua + USA

• LAIA / ALADI = Latin American Integration Association

• CARICOM = Caribbean Community and Common Market

• NAFTA to FTAA or SAFTA?

more

Association of SouthEast Asian

NationsGoals

– promote economic, social, and cultural development – safeguard economic and political stability – serve as a forum to resolve disputes fairly and peacefully

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

1. ASEAN governments’ commitment to deregulation, liberalization, & privatization of their economies

2. Decision to shift economies from commodity-based to manufacturing-based

3. Decision to specialize in manufacturing components in which they have a comparative advantage

4. Japan’s emergence as major provider of technology & capital necessary to upgrade manufacturing capabilities & develop new industries

ASEAN

A S E A N

APEC

• Formed 1989– major governments discuss mutual

interests in open trade & economic collaboration

– includes all major economies of region & most dynamic, fastest-growing economies in world

• Common goal & commitment to:– open trade– increase economic collaboration– sustain regional growth & development– strengthen multilateral trading system– reduce barriers to investment & trade without compromising other

economies

African Unions• Little actual economic integration

– characterized by political instability in recent decades– unstable economic base

• 2 most active regional cooperative groups:Economic Community of West

African

States (ECOWAS) - 15 members

- plagued with financial problems;

- conflict within group;

- inactivity on part of members

Southern African Development

Community (SADC) - 14 members

– most advanced & viable of Africa’s regional organizations

African Free Trade Zone• Formed October 2008• AFTZ = SADC + Common Market for Eastern &

Southern Africa + East African Community• 26 countries; GDP $624 billion• Cecil John Rhodes’ dream of free trade zone

“from Cape to Cairo”• Angola, Botswana, Burundi, Comoros, Djibouti, Democratic Republic of

Congo, Egypt, Eritrea, Ethiopia, Kenya, Lesotho, Libya, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Rwanda, Seychelles, Swaziland, South Africa, Sudan (?), Tanzania, Uganda, Zambia & Zimbabwe

• Only natural member of AFTZ left in cold was Somalia, due to 20 years of civil strife that has left most of that country without a functioning government.

African Economic Community

members of AEC pillar blocs

states signatories to AEC Treaty, but not participating in any pillars

AFRICAN Regional Economi

c Commun

-ities

Middle East• Middle East has been less aggressive in

forming successful multi-market groups– long history of border disputes & persistent ideological

differences must be overcome

• Arab Free Trade Area (GAFTA)• Economic Cooperation Organization (ECO)• Organization of the Islamic Conference

(OIC)– 60 countries – > 650 million Muslims worldwide– member countries’ vast natural resources, substantial

capital, & cheap labor force are strengths of the OIC

Keys to success in Strategic Global Alliances

• Multinational market groups [ opportunities – via access to greatly enlarged markets with reduced or

abolished country-by-country tariff barriers & restrictions• World competition will intensify

– as businesses become stronger & more experienced in dealing with large market groups

• Opportunities– economic integration creates large mass markets

• Market barriers– primary aim of multinational market is to protect businesses

operating within its borders• Reciprocity

– if a country does not open its market to a firm within its economic alliance, it cannot expect to have access to the alliance’s markets

Next class: Case # 2: Nestlé

Preparation: Reading for Nestlé case analysis: Read case study via text book + independent reading Visit Nestlé web site www.nestle.com Prepare for class discussion & hand in.