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Chapter 10 Multinational Market Regions and Market Groups PowerPoint presentation prepared by: Professor Rajiv Mehta Associate Professor of Marketing New Jersey Institute of Technology Newark, N.J. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 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 AsiaPacific 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. 2. 3. 4. 5. Economic Compatibility (similar economic systems) Political Compatibility (similar political systems) Cultural Compatibility Geographic factors Weakness in some must be balanced by strengths in others Patterns of Multinational Cooperation • 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: 1. 2. 3. 4. Regional Cooperation Groups Free Trade Areas Customs Unions Common Markets and Economic Unions 5. Political Unions 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 • A group of countries that have agreed to reduce drastically (but not eliminate) all trade barriers such as customs duties and nontariff barriers (standards) • Member countries can have different trade policies for other external countries • Examples of Free Trade Areas: NAFTA, and European Free Trade Area (EFTA) between Iceland, Liechtenstein, Norway, and Switzerland Customs Unions • 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. • Examples of Customs Unions: East African Customs Union between Ethiopia, Kenya, Sudan, Tanzania, Uganda, and Zambia Common Markets • 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 • 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. • Political Unions • 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 • Examples of Political Unions: COMECON (Council for Mutual Economic Assistance), and U.S.S.R., but it no longer exists Global Markets and Multinational Market Groups • Many Multinational Market Groups have emerged due to recent trends that include: 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 • 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 Value-content rule • Non-NAFTA imports undergo sufficient manufacture or processing to become products that can qualify under a different tariff classification. • 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 Mexico Bolivia Paraguay Brazil Peru Chile Uruguay Columbia Venezuela Ecuador 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 Jamaica Barbuda Montserrat Belize St. Kitts-Nevis Dominica Anguilla Grenada St. Lucia Guyana St. Vincent Trinidad-Tobago Association of Southeast Asian Nations (ASEAN) Brunei Singapore Indonesia Thailand Laos Vietnam Malaysia Myanmar Philippines Association of Southeast Asian Nations (ASEAN) + 3 Brunei Singapore Indonesia Thailand Laos Vietnam Malaysia Japan Myanmar S. Korea Philippines China Economic Cooperation Organization (ECO) Pakistan Iran Turkey Azerbaijan Turkmenistan Uzbekistan Asia-Pacific Economic Cooperation (APEC) Australia Japan Philippines Brunei South Korea Russia Canada Malaysia Singapore Chile Mexico Taiwan China New Zealand Thailand Hong Kong Papua New Guinea U.S.A. Indonesia Peru 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 Guinea-Bissau Burkina Faso Liberia Cote d’ Ivoire Mali Gambia Mauritania Ghana Niger Guinea Nigeria Southern African Development Community (SADC) Angola Gabon Botswana Mali Lesotho Mauritania Namibia Niger Malawi Senegal Mauritius 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 Algeria Libya Morocco Tunisia McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc. All rights reserved. Arab Common Market Iraq Kuwait Jordan Syria Egypt McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc. All rights reserved. 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