GLOBAL MARKETING 9TH EDITION
KEEGANGLOBAL MARKETING CONTEMPORARY THEORY PRACTICE AND CASES 1ST EDITION ALON
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CHAPTER 5
INTEGRATING GLOBAL, REGIONAL, AND NATIONAL MARKETS LEARNING OBJECTIVES
After reading this chapter, you should be able to:
• Be aware of the difference between regional and global trade agreements
• Understand the difference between various types of regional economic blocs.
• Understand the key issues and concepts associated with emerging markets, especially the BRIC countries.
• Discuss why there is more regional than global trade.
• Make an argument for “fair trade.”
• Determine which emerging markets have the most potential and why.
While most consumers are free to choose between locally made and imported products, in reality, international commerce involves some sort of government intervention to protect domestic industry. Protectionist policies include tariffs (taxes on imports), quotas (limits on the quantity of imports), and non-tariff trade barriers such as mandates on the quality or the content of imported goods. While enforced with little difficulty on a domestic basis, it is difficult to expand these regulations extraterritorially. Even within the European Union, member states exhibit signs of protectionism. Yet most economists agree that trade liberalization contributes to a more positive global economy.
Regional trade agreements lower trade barriers among members without having to lower barriers for non-members. Geographically more limited than multilateral or global agreements, the regional agreement has become the primary means of international trade expansion. Free trade blocs such as the North American Free Trade Agreement (NAFTA) and customs and monetary unions, like the European Union (EU) resulted in the removal of trade barriers between member countries, and a concentration of trade within regions rather than globally. These regional blocks significantly influence market entry choices due to preferential trading terms and potentially reducing the costs of serving multiple country markets.
While regional economic groups have accelerated international trade flows worldwide, flows are still concentrated in developed countries, and in particular, in the Triad nations of the United States, the European Union and China. The U.S. is still the largest exporter and importer in the world, but may soon lose this distinction to China. China’s newly dominant presence in world trade has created opportunities for many countries, but also a staunch new competitor, particularly in industries such as textiles and electronic goods. This contributes in large part to Asia’s status as the world’s fastest growing economy. It is likely that global investment will shift from developed nations to the world’s emerging economies such as those in Asia.
"Single markets" as exemplified by the EU, NAFTA and Mercosur, represent integrated economies united by harmonized regulatory standards and common levels of social protection. Firms doing business in these regions must abide regulations established both
by the individual country and the economic region. These regional trading blocs exist in one of three forms: free-trade areas, customs unions and common markets.
Free trade areas eliminate tariffs and other trade barriers between member nations, while policies toward countries outside the agreement remain unaffected. NAFTA is the most often cited example of an FTA. While successful in increasing inter-group trade, a downfall of the arrangement is the potential for diversion. In this scenario, imports formerly destined for one country within an FTA are diverted to another member with lesser external tariff rates. The balance of the markets encompassed in the agreement is then accessed at a lesser cost, enhancing the competitive position of the exporter.
Another well-known FTA is the European Free Trade Area, which includes those countries that did not opt to join the European Union. Many bi-lateral agreements are also in existence.
A customs union contains the same provisions as a free-trade area with one major addition – a common external tariff. This arrangement discourages diversion.
The most advanced form of trade bloc is the common market, which combines the provisions of a customs union with two additional criteria, the free movement of people and capital. The largest of the common markets is the European Union. The EU seeks to further its inter-union ties via the creation of both monetary and political unions. And, while internal tariff barriers have been eliminated, non-tariff barriers such as production
and content specifications still remain between members. An attempt to harmonize standards is ongoing.
The ultimate objective of the EU…the political union requires the renunciation of national sovereignty in favor of the union’s political identity.
While its size and relative success in synthesizing member nations make the EU the most referenced trade bloc, most major geographic regions have formed blocs with similar motives, such as ASEAN and Mercosur.
Free trade and fair trade are distinctly different concepts. While free trade refers to the removal of trade barriers, fair trade addresses the issue of social justice in global economies by concerning itself with the proffering of fair prices for goods and preserving human dignity in the workplace. Several NGOs, or non-governmental organizations, work to promote the fair trade concept. Global marketers should be aware of the growing importance of these organizations.
Emerging markets have been identified by many economists as the global opportunity of the future. An emerging market essentially refers to any developing country, identified by GATT as nations with low standards of living…an obtuse definition at best. Others assume that emerging markets are those that are transitioning to a free market economy.
The CAGE model is relevant to a profile of emerging markets. In addition to the obvious differences in economic development, large cultural distances exist between emerging and developed nations. This is certainly evident in the case of corporate social responsibility. Administrative distances are most prevalent when emerging nations are unengaged in any type of multilateral grouping. Geographic distances exist both within countries and regions.
One of the fastest growing groups of emerging economies is comprised of Brazil, Russia, India and China. These BRIC countries offer high consumer potential and that could soon overtake the economies of the developed world. BRIC countries are not only major sources for manufacturing, but are consumers of basic products like food and clothing, and high technology products as well. The lower average incomes prevalent in emerging markets may require a repositioning of products targeted to the middle class in developed nations. Alternately, products may be adapted for sale at lower prices. Yet the sheer growth of these markets justifies the adaptation of the marketing mix. As the BRIC countries experience rapid economic growth, other emerging markets such as South Korea, Taiwan and many Eastern European countries are also developing rapidly.
TEACHING TIPS & CLASS DISCUSSION SUGGESTIONS
1. Have students pair off and prepare for a debate. At issue: are American security interests best served by retaining domestic control over security related products and services, or rather, by expending taxpayer funds in the most cost-efficient manner?
2. Wal-Mart is often criticized for the amount of imported Chinese goods it retails. The large volume of imports is perceived to have a negative impact on the U.S. economy, resulting in higher unemployment and lower wages. Take a poll of students, ideally using clickers, Twitter or Survey Monkey so that responses can remain anonymous. The single question? If prices at Wal-Mart were 30% higher tomorrow than they were today as a result of a new ‘buy American’ strategy, would you be as likely to shop there? The results may vary, but generally students will respond in the negative. This provides an exciting foundation for class discussion regarding the real benefits and disadvantages of imports for the consumer.
3. The concept illustrated by Figure 5.5, An Example of Trade Diversion, can be made more relevant to students by providing them with different hypothetical revenues for the manufacturer. Students are then able to compare and contrast the pre-and post diversionary revenue stream that is derived under the higher and lower tariff levels. This also sharpens their ability to apply simple math reasoning skills to global trade scenarios.
4. The differences between various forms of political integration can often confuse students who are being introduced to the concept for the first time; variations can seem subtle and unremarkable. Ask, “Why is the European Union not yet considered a fully integrated economic and monetary union? Which European Union nation(s) have not yet adopted the Euro, and why? What challenges are the nations of the EU currently facing with regard to the economic crisis currently afflicting several of their countries?”
5. Individually or as a class, have students visit the nearest grocery store and identify 5 products which are marketed as ‘fair trade’ products. Most likely merchandising areas will include coffee, tea, chocolates, rices and other grains, flowers and gift merchandise. Students should comment on how they recognized the product(s) as ‘fair trade’ products? Do they notice any difference in price between fair trade and ‘non-fair’ trade items in the same category? And, now that they’ve identified fair trade options, would they be more likely to select them for future purchase?
INTERNET EXERCISES
1. Complete online research on NAFTA. Summarize the agreement’s economic impact, both positive and negative, on all three participating nations. Remember to address not just trade-related impacts, but also secondary consequences to such factors as employment, trade diversion, immigration and productivity. Students should be sure to cite all of their online resources.
2. Visit the Fair Trade USA site at Fair Trade USA | Every Purchase Matters. View the trailer of the movie, “Black Gold,” and read the accompanying article. Then consider these questions from the Fair Trade perspective:
What does "commodity coffee" mean for producers and for consumers?
What obligation, if any, should large coffee companies have to help small farmers?
Is fair trade the answer, or is it unrealistic for the Ethiopian economy to continue to depend so heavily on coffee?
Why do you think efforts to help Africa have focused more on providing aid than increasing or improving trade?
Do you plan to change your coffee-buying or drinking habits? If so, how?
3. Emerging markets such as those encompassed by the BRIC nations, and more recently the BRICI designates which also include Indonesia, are considered hotbeds of market potential for anything and everything digital. However, the opportunities for digital products and services vary based upon the stage of internet and digital device availability. Research the BRICI nations’ potential for digital products online, comparing and contrasting the products and services most likely to succeed in each. Start by visiting the Boston Consulting Group website at http://www.bcg.com/media/PressReleaseDetails.aspx?id=tcm:12-59401.
ANSWERS TO DISCUSSION QUESTIONS
1. Look up export statistics for your State. Are there exports to emerging markets? If so, what is the proportion of exports compared to developed countries. Student responses will vary.
2. Do you agree that there is little difference between emerging markets and developing countries? Why or why not?
Student responses will vary but these are the important points that should be surfaced:
• Measures of national income in emerging markets are lower than those of developed countries, although market potential is often as substantial.
• Emerging markets are considered to be transitioning from a dictatorship to a free market-oriented economy. This is not the case with all developing nations. The implication is that emerging countries are more likely to experience rapid economic growth and support from organizations such as the World Bank and the IMF.
• It can be said that while all emerging markets are also developing countries, not all developing countries are emerging markets
3. You are asked by the owner of a medium sized firm manufacturing digital alarm clocks. He thinks there is a market for his product in the BRIC countries. How would you advise him on what to look for first?
The consultant should look for quantified market potential indicators. These include market size and growth rate, market intensity and consumption capacity, commercial infrastructure, economic freedom, market receptivity and country risk.
Several of the factors noted above, while part of an index, speak to more qualitative issues such as cultural fit of the product and the firm (market receptivity), commercial infrastructure (channel partner availability and skill set).
ADDITIONAL RESOURCES
Europa: Gateway to the European Union http://europa.eu/about-eu/factsfigures/index_en.htm
http://www.bbc.co.uk/news/world_radio_and_tv/
NAFTA Secretariat Website http://www.nafta-sec-alena.org/en/view.aspx
Mercosur Website with Google Translator
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The Official Website of the Association of Southeast Asian Nations The Official Website of the Association of Southeast Asian Nations
Marcos Aguiar, Vladislav Boutenko, David Michael, Vaishali Rastogi, Arvind
Subramanian and Yvonne Zhou, “The Internet’s New Billion Digital Consumers in Brazil, Russia, India, China and Indonesia” The Boston Consulting Group Review, September, 2010.