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McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies,Inc.All rights reserved.Europe,Africa,andthe Middle EastChapter 1010-*Learning ObjectivesLO1 The reasons for economic unionLO2 Patterns of international cooperationLO3 The evolution of the European UnionLO4 Evolving patterns of trade as eastern Europe andthe former Soviet states embrace free-market systemsLO5 Strategic implications for marketing in the regionLO6 The size and nature of marketing opportunities in the European/African/Middle East regions10-*Regional Market Regions and Regional Economic CooperationMultinational market regions are groups of countries that seek mutual economic benefit from reducing interregional trade and tariff barriersare the most important global trends todayThe most successful one is the European Union(EU),the worlds largest multinational market region and foremost example of economic cooperationMultinational market groups form large markets that provide potentially significant opportunities for international business.310-*La Raison dEtreSuccessful economic union requires favorable economic,political,cultural,and geographic factors as a basis for successThe advantages of economic union must be clear-cut and significantBenefits must greatly outweigh the disadvantages before nations forgo any part of their sovereignty10-*Economic FactorsUsually markets are enlarged through preferential tariff treatment for participating members,common tariff barriers against outsiders,or bothEnlarged,protected markets stimulate internal economic developmentExternal and internal barriers are reduced because of the greater economic security afforded to domestic producersFor a union to survive,it must have agreements and mechanisms in place to settle economic disputes.Political FactorsPolitical amenability among countries is another basic requisite for the development of a market agreementTypically,marketing arrangements are made in response to external political threatsParticipating countries must have comparable aspirations and general compatibility before surrendering any part of their national sovereignty510-*Geographic and Temporal ProximityAlthough not absolutely imperative for cooperating members of a customs union,such closeness facilitates the functioning of a common marketMore important than physical distance are differences across time zonesTrade tends to travel more easily in northsouth directions than it did in ancient timesTransportation networks are interrelated and well developed when countries are close togetherIssues of immigration,legal and illegal,also promote closer economic integration610-*Cultural FactorsCultural similarity eases the shock of economic cooperation with other countriesMembers understand the outlook and viewpoints of their colleaguesLanguage,as a part of culture,has not created as much a barrier for EU countries as was expectedNearly every educated European can do business in at least two or three languagesReligion,however still seems to be an issue,as evidenced by the impending membership of turkey into the EUKey members share a long-established Christian heritage10-*Patterns of Multinational Cooperation10-*Regional Cooperation GroupsThe most basic economic integration and cooperation is the regional cooperation for development(RCD)Governments agree to participate jointly to develop basic industries beneficial to each economyEach country makes an advance commitment to:participate in the financing of a new joint ventureto purchase a specified share of the output of the venture10-*Free Trade AreaA free trade area(FTA)requires more cooperation and integration than the RCD It is 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.An FTA provides its members with a mass market without barriers to impede the flow of goods and services10-*Customs UnionA customs union represents the next stage in economic cooperationIt enjoys the free trade areas reduced or eliminated internal tariffs and adds a common external tariff on products imported from countries outside the union.The European Union was a customs union before becoming a common marketCustoms unions exist between France and Monaco,Italy and San Marino,and Switzerland and Liechtenstein,to name some examples.1110-*Common MarketA common market agreement eliminates all tariffs and other restrictions on internal tradeAdopts a set of common external tariffs,and removes all restrictions on the free flow of capital and labor among member nationsIt is a unified economy and lacks only political unity to become a political union1210-*Political UnionPolitical union is the most fully integrated form of regional cooperationIt involves complete political and economic integration,either voluntary or enforcedThe most notable enforced political union was the Council for Mutual Economic Assistance(COMECON),a centrally controlled group of countries organized by the Soviet UnionTwo new political unions came into existence in the 1990s:the Commonwealth of Independent States(CIS),made up of the republics of the former Soviet Union,andthe European Union(EU)1310-*Global Markets and Multinational GroupsThe restructuring of the eastern European bloc into independent market-driven economiesThe dissolution of the Soviet Union into independent statesThe worldwide trend toward economic cooperation Enhanced global competitionAll of these warrant the study of three multinational regions:Europe,Africa and Middle East1410-*Europe and European IntegrationWithin Europe,every type of multinational market grouping exists:The European UnionEuropean Economic Area,The European Free Trade Area No other group is more secure or more important economically than the EUIt has made progress toward achieving the goal of complete economic integration and,ultimately,political unionThere are language and cultural differences,individual national interests,political differences,and centuries-old restrictions designed to protect local national marketsHistorically,standards have been used to effectively limit market access to individual countries(Germany:Beer,Italy:Pasta)Exhibit 10.1 European Market Regions Fundamental Market Metrics(in parentheses)=average annual growth rate 20062011 as a percentage*Current U.S.$.*eEurozone.Source:Euromonitor International,2012;World Bank,2012.10-161610-*European UnionEven though several member states are not fully implementing all the measures,they are making progressThe proportion of directives not yet implemented in all 27 member states has fallen dramaticallyTaxation has been one of the areas where implementation lags and reform continues to be necessaryEU InstitutionsIt has executive,parliamentary,and judicial branches:the European Commission:initiates policiesthe Council of Ministers:is the decision-making body of the European Unionthe European Parliament:can amend and adopt legislation the Court of Justice:is responsible for challenging any measures incompatible with the Treaty of Rome,for passing judgment at the request of a national court,on the interpretation or validity of points of EU law10-*Economic and Monetary Union(EMU)The EMU,a provision of the Maastricht Treaty,established the parameters of the creation of a common currency for the EU,the euroEstablished a timetable for its implementationIn 2002,a central bank was established,conversion rates were fixed,circulation of euro banknotes and coins was completedThe 12 member states employed the euro beginning in January 1,2001,some did not join voluntarily1810-*Expansion of the European UnionTen new countries were added in 2004,some ahead of scheduleBulgaria and Romania entered as planned in 2007Talks with Turkey,Macedonia,and Croatia are continuingNegotiations with Turkey have had their ups and downs,but the Muslim majority nation has economically benefited from its new opennessIn 2007 the European Union celebrated its golden anniversaryThe 20082009 global recession has posed daunting short-term challenges to the integrity of the Union An early recovery stalled in late 2009;and Ireland,Portugal,Spain,and particularly Greece are experiencing continuing problems.10-*Long Term Challenges for the EUThe long term challenges facing the Union in the next 50 years appear to fall into three categories:improving the Unions economic performancedeciding how to limit the political aspect of union and deciding about further enlargement10-*Eastern EuropeMost eastern European countries are privatizing state-owned enterprisesEstablishing free market pricing systemsRelaxing import controls But struggling with inflationThe very different paths taken toward market economies have resulted in different levels of progressBaltic StatesThe Baltic statesEstonia,Latvia,and Lithuaniaare a good example of the difference that the right policies can makeAll three countries started off with roughly the same legacy of inefficient industry and Soviet-style command economiesGovernment bureaucracy,corruption,and organized crimecommon problems found in the countries of the former Soviet Union continueThese issues represent the most significant hurdles to U.S.trade and investment2110-*Commonwealth of Independent StatesThe first Soviet republics to declare independence were the Baltic states The remaining 12 republics of the former USSR,collectively known as the Newly Independent States(NIS),regrouped into the Commonwealth of Independent StatesThe CIS is a loose economic and political alliance with open borders but no central government2210-*AfricaRecent global economic problems have not impeded the growth among African countriesEthiopia,Angola,and Malawi each experienced annual growth rates of greater than 8 percent between 2007 and 2011Several other countries in the sub-Saharan region have grown faster than 5 percent annuallyHowever,Africas multinational market integration activities can be characterized as a great deal of activity but little progressDespite the large number and assortment of paper organizations,there has been little progress towards economic integration because of political instabilityMiddle East/North Africa(MENA)The ongoing political turmoil in Middle East/North Africa(MENA)region accelerated in 2011 and has resulted in economic disaster in several countries in the regionThe Arab Common Market set goals for free internal trade but has not really succeededThe aim was to integrate the economies of the 22 Arab countries,but a long history of border disputes,and internal political turmoil will have to be overcome.The Arab Gulf states,Egypt,and Morocco formed an Arab Free Trade Area,sometimes called the Greater Arab Free Trade Area(GAFTA)Iran,Pakistan,and Turkey,formed the Regional Cooperation for Development(RCD),recently renamed to the Economic Cooperation Organization(ECO)The organization,led by Iran,is the Organization of the Islamic Conference(OIC),a common market composed of Islamic countries2310-*Implications of Market IntegrationMultinational provide opportunity through access to greatly enlarged marketsProduction,financing,labor,and marketing decisions are impactedWorld competition will continue to intensify as businesses become stronger and more experienced in dealing with large market groups.Regulation of business activities has been intensified throughout multinational market groups2410-*OpportunitiesEconomic integration creates large mass markets.Most multinational groups have coordinated programs to foster economic growthMajor savings will result from the billions of dollars now spent in developing different versions of products to meet a variety of national standards.Market BarriersProvide an advantage to the companies within the market in their dealings with other countries of the market groupCompanies willing to invest in production facilities in multinational markets may benefit from protectionist measures Exporters to these markets are in a considerably weaker positionMeeting product and other standards within each multinational marketing region like the EU is a challenge2510-2610-*Marketing Mix ImplicationsIn the past:Companies charged different prices in different countriesNon-tariff barriers between member countries supported such price differentialsCompanies are adjusting their marketing mix strategies to reflect anticipated market changes in the single European market.Price standardization due to parallel importationFairer competition due to single currency(EU)Reduced number of brands due to standardizationIncreased competition among retailers27
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