Those groups of countries, which seek mutual economic benefit from reducing interregional trade and tariff barriers, are called multinational market regions.
Reasons for the existence of Multinationals:
- Need for trade
- Reduce Transaction Costs
- History of Trade (East to West), but Easier to Trade North to South now,
- Time Zones (India Coal Center has 12 hour difference in the USA)
- Political factors that work against regional (Embargo)
Factors required for successful multinational corporations:
- Economic-enlarged, protected markets stimulate internal economic development by providing assured outlets and preferential treatment of goods produced within the customs union, and consumers benefit from lower internal tariff barriers among participating countries
- Political- participating countries must have comparable aspirations and general compatibility before surrendering any part of their national sovereignty
- Geographic and Temporal Proximity-closeness facilitates functioning of a common market
- Cultural- cultural similarity eases the shock of economic cooperation with other countries.
The demise of the Latin American Free Trade Association (LAFTA) was the result of economically stronger members not allowing for the needs of the weaker ones. Which of the following treaties formalized the European Economic Community trade group? Of all the multinational market groups, none has been more secure in its cooperation and important with respect to economic benefits than the European Union. Types are:
1) Regional cooperation groups– most basic economic integration and cooperation arrangement, governments agree to participate jointly to develop basic industries beneficial to each economy; purpose of executing a particular project
2) Free trade area requires more cooperation and integration than the RCD, the agreement between 2 or more countries to reduce or eliminate customs duties and nontariff trade barriers among partner countries while members maintain individual tariff schedules for external countries; Tariffs are decreased or eliminated, Tariffs outside remain, Each country decides separately for Tariffs outside. For example, look at NAFTA. A free trade area provides its members with a mass market without barriers to impede the flow of goods and services. This is a lower level stage of economic partnership. Once a group of countries has mastered the free trade area concept, the next step is to enter into a customs union.
3) Customs union enjoy the free trade area’s reduced internal tariffs and add a common external tariff on products imported from countries outside the union, logical stage of cooperation in transition from FTA to common market; Custom tariff (Single Policy), very simplified, less paperwork Example: European Union (Political Union)
4) Common markets eliminate all tariffs and other restrictions on internal trade, adopts a set of common external tariffs, and removes all restrictions on the free flow of capital and labor among member nations, common marketplace for goods, services, and capital, unified economy that lacks only political unity to become political union Example: Big Bus Rule-Any profession could go to other countries and work
5) Political union is most fully integrated a form of regional cooperation, involves complete political and economic integration – either voluntary or enforced. Commonwealth is a voluntary organization providing for the loosest possible relationship that can be qualified as economic integration (weakest of all political unions)
Major organizational cooperations:
- European Union (EU): composed of 27 members expanded in 2004 to 10 more countries including Bulgaria and Romania, talks of Turkey, Macedonia, and Croatia are continuing. The expansion of the European Union has raised fears among early members that the entry of new member countries may result in illegal immigrants surging across borders. Single European Act-the treaty that created the European Union? The expansion of the European Union has raised fears among early members that the entry of new member countries may result in the flood of cheap labor.
- North American Free Trade Agreement (NAFTA): a comprehensive trade agreement among Canada, Mexico, and the United States that creates one of the largest and richest markets in the world. The comprehensive trade agreement that addresses doing business within North America is appropriately named NAFTA.
- Mercosur (Southern Cone Free Trade Area): When the old Soviet Union dissolved, the MERCOSUR was one of the trade groups that sought to fill the void for U.S.S.R. member states. Argentina, Bolivia, Brazil, Chile, Paraguay, and Uruguay – second largest common market agreement in the Americas after NAFTA. MERCOSUR is the second-largest common-market agreement in the Americas.
- Association of Southeast Asian Nations (ASEAN) : Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam, China, Japan, and South Korea.
Economic Requirements to Meet:
- Budget Deficits
- Must have low levels of infrastructure for certain number of years
- Standard Regulations, banking loans. Any current legislation after that needs to be proposed Legal/court systems needs to mach EU and other countries-can’t get in trouble for soveirgnty in 1 EU country that can’t in another.
- Integration of infrastructure issues
- Must meet production/productivity standard. Norway has highest GDP; War of Georgia V. Russia.
There are reasons for some countries not joining the EU. For example, the Swiss are natural historically more important than benefits from EU. Economic Reasons for countries like Greece, Portugal, and Spain are in trouble and don’t want to end up like them. Companies defaulting on theme loans/bonds will cause overall value of the Euro depreciable and countries like France didn’t want this.
Standardization versus adaptation is an aged old question. For example, the ethnocentrism of American managers and academics, by European or Japanese perspective, markets are by definition international and the special requirements of the huge American market must be considered from the beginning, only in America can international market requirements be an afterthought, it is only the manufacturing and/or finance managers in companies who argue for standardization for the sake of economies of scale. Ideal market segment size from a marketing standpoint: 1