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Global Marketing Management Multinational Strategic Alliances

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1 Global Marketing Management Multinational Strategic Alliances
MKTG Spring 2014 Mrs. Tamara L. Cohen Global Marketing Management Multinational Strategic Alliances Class #15

2 KEY TERMS Multinational Market Region Single European Act
Maastricht Treaty Economic & Monetary Union Use of the € began on January 1, 2002, by 12 countries. Of all the multinational market groups, none is more secure in its cooperation or more important economically than the European Union. Multinational Market Region = groups of countries that seek mutual economic benefit from reducing interregional tariffs and barriers to trade Single European Act = agreement to remove all barriers to trade and make European Union a single internal market The Single European Act (1987) was the agreement designed to finally remove all barriers to trade and make the European Community a single internal market. In addition to dismantling the existing barriers, the Single European Act proposed a wide range of new commercial policies, including single European standards, one of the more difficult and time-consuming goals to achieve. Maastricht Treaty = treaty signed by 12 nations of the European Community creating the European Union (1992) Economic & Monetary Union = provision of Maastricht Treaty for common currency for the EU: the EURO, €

3 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 Nations can pursue 5 different levels of regional integration, with each one building on the last. A Free Trade Area removes all tariff & non-tariff barriers to trade between members (e.g. subsidies & quotas). Each nation determines its own barriers against nonmembers. The group may also establish a process for resolving trade disputes among members. A Customs Union adds the requirement that all members set a common external trade policy, i.e. against nonmembers. Members may also negotiate as a group with organizations like the WTO. The European Union was a customs union before becoming a common market. A Common Market adds the free movement of labor and capital (i.e. factors of production), and sets a common external trade policy. Challenges: cooperating on economic and labor policies can be difficult; also benefits can be uneven because factors of production may flow to areas that offer best returns. An Economic Union compels members to harmonize their tax, monetary, and fiscal policies (i.e. economic policies), create a common currency, and concede some sovereignty to the Union. A Political Union requires members to coordinate their external economic and political policies. Historically, the US and Canada are examples of early Political Unions: Individual states and provinces combined to form unified, larger entities. In both cases, economic and political policies were initially coordinated, and ultimately merged and streamlined. 2 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, and the European Union (EU). The European Union was created when the 12 nations of the European Community ratified the Maastricht Treaty. A commonwealth of nations is a voluntary organization providing for the loosest possible relationship that can be classified as economic integration. The British Commonwealth includes Britain and countries formerly part of the British Empire.

4 Building Blocks of Regional Integration
all barriers to trade among members removed + common external trade policy + free movement of labor & capital + coordinated economic policies + coordinated external economic & political policies Free Trade Area = Customs Union = Common Market = Economic Union = Political Union =

5 Regional Economic Integration (Regionalization)
GOAL = higher living standards through increased cross-border trade and investment. The goal of regional economic integration is higher living standards through increased cross-border trade and investment. Greater specialization is a byproduct of integration that increases productivity, adds to product choices, and lowers prices. A regional trading bloc is a group of nations in a geographic region that are undertaking economic integration. Copyright © 2012 Pearson Education, Inc.

6 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 United Nations = 193 member countries; part of efforts of member countries include mutual economic development World Trade Organization = 159 members

7 World Trade Organization members & observers
Consensus decisions levels the playing field - especially beneficial for smaller countries; can be traumatic for big countries. This map is current. Russia finally joined the WTO in August 2012. March 10, 2014: 159 members GREEN = members LIGHT GREEN = members dually represented by EU BLUE = observers GRAY = no involvement/status (N.Korea, Turkmenistan, Western Sahara, South Sudan, Somalia, Eritrea)

8 RECIPE for successful economic unions
Mix together, using good-quality ingredients: Economic Factors Political Factors Geographic & Temporal Proximity Cultural Factors Universal goals of multinational cooperation = economic benefits + associated peace between & within countries Successful economic unions need favorable economic, political, geographic & cultural factors as basis for success. Many of the associations formed in Africa & Latin America have had little impact because perceived benefits were not sufficient to offset partial loss of sovereignty. Advantages must be clear-cut and significant; benefits must > disadvantages The cooperative agreements among European countries that preceded the EU had their roots in the need for economic redevelopment after World War II, the belief that economic integration created peace between and the political concern for the perceived threat of communism. Many felt that if Europe was to survive, there had to be economic unity; the agreements made then formed the groundwork for the European Union.

9 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 Every type of economic union shares the development and enlargement of market opportunities as a basic orientation; usually, markets are enlarged through preferential tariff treatment for participating members, common tariff barriers against outsiders, or both. Enlarged, protected markets stimulate internal economic development by providing assured outlets and preferential treatment for goods produced within the customs union, and consumers benefit from lower internal tariff barriers among the participating countries. In many cases, external as well as internal barriers are reduced because of the greater economic security afforded domestic producers by the enlarged market. Nations with complementary economic bases are least likely to encounter frictions in the development and operation of a common market unit. However, for an economic union to survive, it must have agreements and mechanisms in place to settle economic disputes. In addition, the total benefit of economic integration must outweigh individual differences that are sure to arise as member countries adjust to new trade relationships. The failure of the Latin American Free Trade Association (LAFTA) was the result of economically stronger members not allowing for the needs of the weaker ones. Many of the less well known attempts at common markets have not flourished because of economic incompatibility that could not be resolved and the uncertainty of future economic advantage. In 2011 free trade agreements were signed by the USA with South Korea, Colombia, Panama: Bloomberg Business Week – Oct.12, 2011 “Free-Trade Deals With Korea, Colombia, Panama Pass U.S. Congress” by Eric Martin and William McQuillen Oct. 12 (Bloomberg) – ‘Congress cleared legislation for U.S. free-trade agreements with South Korea, Colombia and Panama that lawmakers said will boost U.S. exports by about $13 billion. “These free-trade agreements will give our economy a much-needed shot in the arm and create tens of thousands of American jobs,” Senator Max Baucus, the Montana Democrat who leads the Senate Finance Committee, said today.’

10 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 Political amenability among countries is another basic requisite for development of a supranational market arrangement. Participating countries must have comparable aspirations and general compatibility before surrendering any part of their national sovereignty. State sovereignty is one of the most cherished possessions of any nation and is relinquished only for a promise of significant improvement of the national position through cooperation. Economic considerations are the basic catalyst for the formation of a customs union group, but political elements are equally important. The uniting of the original European Union countries was partially a response to the outside threat of the Soviet Union’s great political and economic power; the countries of western Europe were willing to settle their “family squabbles” to present a unified front to the Russian bear. The communist threat no longer exists, but the importance of political unity to fully achieve all the benefits of economic integration has driven European countries to form the Union (EU). At present (March 2104) there is discord and unrest in Ukraine, which has become the subject of a tug-of-war between Russia and the EU/the West. What is at stake for each side?

11 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 Although geographic and temporal proximity are not absolutely essential for cooperating members of a customs union, such closeness does help the functioning of a common market. Indeed, the most recent research demonstrates that more important than physical distance, are differences across time zones. That is, trade tends to travel 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 economic fusion. However, with increasing efficiencies in communication and transportation, the importance of such factors appears to be waning.

12 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.) Generally, cultural similarity eases the shock of economic cooperation with other countries. The more similar the culture, the more likely an agreement is to succeed because members understand the outlook and viewpoints of their colleagues. Great cultural diversity exists in Europe, but EU members share a long-established, common Christian heritage, and are commonly aware of being European. Language not a barrier in Europe because everyone can do business in 2-3 (or more) languages. Interesting that Syria & Turkey used to be friends, but have been quarrelling almost since the beginning of the civil strife in Syria. Their cultural proximity has not shielded them (or perhaps not shielded them enough).

13 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. The more recent creation of multinational market groups has been driven by the fear that not to be part of a vital regional market group is to be left on the sidelines of the global economic boom of the 21st century.

14 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 John L. Graham: “Trade Brings Peace” paper, 2003 Solomon W. Polacheck: Review of International Economics 5 no.3 (1997) Richard Cobden, British politician (1857) Michael Dell: Dell Theory of Conflict Prevention -Thomas Friedman: The World is Flat, “No two countries that are both part of a major global supply chain, like Dell’s, will ever fight a war against each other as long as they are both part of the same global supply chain. Because people embedded in major global supply chains … want to make just-in-time deliveries of goods and services - and enjoy the rising standards of living that come with that.” For a country with no natural resources, being part of a global supply chain is like striking oil - oil that never runs out. Getting dropped from such a chain because you started a war is like having your oil wells go dry or having someone pour cement down them. They won’t come back any time soon.

15 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 Within Europe, every type of multinational market grouping exists. The European Union, European Economic Area, and the European Free Trade Association are the most established cooperative groups.

16 A Brief History of European Integration
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 Britain, not wanting to join the EEC, conceived the European Free Trade Association (EFTA) for those European nations not willing to join the EEC but wanting to participate in a free trade area. Britain and other EFTA countries later became members of the European Community in 1973. When Austria, Finland, and Sweden joined the EU in 1995, Iceland, Liechtenstein, Norway, and Switzerland remained in EFTA, which will most probably dissolve as its members join either the European Economic Area (EEA) or the EU. Because of the success of the EU, and concern that they might be left out of the massive European market, 5 members of the European Free Trade Association elected to join the 12 members of the EU in 1994 to form the European Economic Area, a single market with free movement of goods, services, and capital. The EFTA countries joining the EEA adopted most of the EU’s competition rules and agreed to implement EU rules on company law; however, they maintain their domestic farm policies. The EEA is governed by a special Council of Ministers composed of representatives from EEA member nations.

17 European Union (EU) € (EURO) = single currency of EU since Jan.1, 2002
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 March 10, 2014 (OANDA exchange rate): 1 US $ = 0.72 € 1 Euro (EUR) = € 1 = $1.39 = 1.39 US Dollar (USD) Jan.1, 2002 (when the EURO began): 1 US $ = 1.12 € 1 Euro (EUR) = € 1 = $ = US Dollar (USD) Maastricht Treaty: 1992 treaty signed by 12 nations of the European Community creating the Economic and Monetary Union (EMU). Treaty of Amsterdam: 1997 treaty addressed issues left undone by Maastricht Treaty; aimed to bring single EU market into effect, advance single currency, & enlarge EU into Central & Eastern Europe. Newest member of EU = Croatia (became member on Monday July 1, 2013)

18 European Union (EU) Bumps along the way - traditional protectionism:
German British poultry beer Italian pasta Irish eggs & poultry French wine Historically, standards have been used to effectively limit market access. In EU, most differences have arisen over agriculture and monetary policy. Official reasons were health & safety issues, but real reason was traditional protectionism. Germany protected its beer market from the rest of Europe with a purity law requiring beer sold in Germany to be brewed only from water, hops, malt, and yeast. Italy protected its pasta market by requiring that pasta be made only from durum wheat. (Incidentally, the European Court of Justice has struck down both the beer and pasta regulations as trade violations.) Britain tried to keep French poultry out of British market. France banned Italian wine. Irish banned eggs & poultry from other member countries.

19 European Economic Area
Exhibit 10.2 European economic area includes the EU, EFTA, and Associates. When Austria, Finland, and Sweden joined the EU in 1995, only Iceland, Liechtenstein, Norway, and Switzerland remained in EFTA.

20 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 One other trade group in Eastern Europe/Asia that has emerged and persisted since the dissolution of the Soviet Union: the Commonwealth of Independent States (CIS). The series of events after the aborted coup against Mikhail Gorbachev led to the complete dissolution of the USSR. The first Soviet republics to declare independence were the Baltic states, which quickly gained recognition by several Western nations. The remaining 12 republics of the former USSR, collectively known as the Newly Independent States (NIS), regrouped into the Commonwealth of Independent States. The CIS is a loose economic and political alliance with open borders but no central government. The main provisions of the commonwealth agreement are to: repeal all Soviet laws and assume the powers of the old regimes launch radical economic reforms, including freeing most prices keep the ruble, but allow new currencies establish a European Union–style free trade association create joint control of nuclear weapons fulfill all Soviet foreign treaties and debt obligations How the CIS will be organized and what its ultimate importance will be is anyone’s guess. Members of the CIS: Armenia, Azerbaijan, Belorussia, Georgia, Kazakhstan, Kirghizia, Moldavia, Russia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan Russia ranks the highest in population, GDP, as well as both imports and exports of goods and services. While the 3 Slavic republics of Russia, Ukraine, and Belarus have interests and history in common, as do the 5 Central Asian republics, the ties between these 2 core groups of the CIS are tenuous (i.e. not strong), and stem mainly from their former Soviet membership.

21 Commonwealth of Independent States
Members of the CIS: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kirghizia, Moldavia, Russia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan  

22 NAFTA NAFTA = 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 Before the creation of the North American Free Trade Agreement (NAFTA), the United States and Canada had the world’s largest bilateral trade agreement; each was the other’s largest trading partner. To further support trade activity, the 2 countries established the United States–Canada Free Trade Area (CFTA), designed to eliminate all trade barriers between the two countries. The CFTA created a single, continental commercial market for all goods and most services. However, no economic or political union of any kind was involved. It provided only for the elimination of tariffs and other trade barriers. When NAFTA was ratified and became effective in 1994, a single market of 360 million people with a $6 trillion GNP emerged. NAFTA required the 3 countries to remove all tariffs and barriers to trade over 15 years, and beginning in 2008 all tariff barriers were officially dropped But, for the most part, NAFTA is a comprehensive trade agreement that addresses, and in most cases improves, all aspects of doing business within North America. The elimination of trade and investment barriers among Canada, Mexico, and the United States creates one of the largest and richest markets in the world. Cross-border cooperation seems to soften other long-standing areas of conflict such as legal and illegal immigration. NAFTA has paved the way for Walmart to move into Mexico and Mexican supermarket giant Gigante to move into the United States. Other cross-border services are also thriving, including entertainment and health care. Job losses have not been as drastic as once feared, in part because many companies have established maquiladora plants in anticipation of the benefits from NAFTA. A maquiladora or maquila = a factory that imports materials & equipment on a duty-free and tariff-free basis for assembly or manufacturing, then re-exports the assembled product, usually back to the originating country. A maquila is also referred to as a "twin plant", or "in-bond" industry. Currently about 1.1 million Mexicans are employed in maquiladoras. A Mexican maquiladora factory allows duty free, temporary importation of machinery, parts and materials to Mexico, as long as the goods produced in those factories do not remain in Mexico. About 90% of what is produced in maquiladora factories returns to the USA. Companies such as auto, clothing, toy, electronics and others transport their raw materials and/or disassembled parts to these factories, and the low-cost Mexican workers labor to complete the manufacturing processes. The products are then returned with little or no duties, tariffs, taxes and low labor costs to US factories for further processing, or they may be delivered directly to customers (i.e. US retail stores). Picture: Published May 9, 2011 in “Free Trade” Agreement Has Sent 683,000 U.S. Jobs to Mexico

23 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 (including Argentina, Brazil, Paraguay, and Uruguay) is the second-largest common-market agreement in the Americas after NAFTA. Spanish: Mercado Común del Sur (MERCOSUR) Portuguese: Mercado Comum do Sul (MERCOSUL) Since its inception, MERCOSUR has become the most influential and successful free trade area in South America. Its purpose is to promote FREE TRADE and the fluid movement of goods, people, and currency. MERCOSUR has a market of 270 million people (September, 2011) and is the 3rd largest free trade area in the world. In the initial program in 1986, a regional currency was proposed: the GAUCHO. This proposal has not progressed. Bolivia, Chile, Colombia, Ecuador & Peru currently have associate member status. Venezuela signed a membership agreement in 2006, but has not yet been ratified. Negotiations have been under way since 1999 for a free trade agreement between the EU and MERCOSUR, the 1st region-to-region free trade accord. Israel & Egypt are the only non-South American free trade partners.

24 MERCOSUR (MERCOSUL) Mercosur = Argentina + Brazil + Paraguay + Uruguay
Associate members: Bolivia, Chile, Colombia, Ecuador, Peru Awaiting approval: Venezuela

25 Latin American Economic Cooperation
more 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? DR-CAFTA represents another important step toward the ultimate goal of a free trade agreement encompassing all the Americas. Another ambitious agreement, the Latin American Free Trade Association (LAFTA), gave way to the Latin American Integration Association (LAIA or ALADI), with new rules of organization that revitalized that group. The success of the Caribbean Free Trade Association led to the creation of the Caribbean Community and Common Market. CARICOM member countries continue in their efforts to achieve true regional integration. Initially NAFTA was envisioned as the blueprint for a free trade area extending from Alaska to Argentina. The first new country to enter the NAFTA fold was to be Chile, then membership was to extend south until there was a Free Trade Area of the Americas (FTAA) by The question now is whether there will be an FTAA or whether there will be a tri-country NAFTA in the north and a South American Free Trade Area (SAFTA) led by Brazil and the other member states of Mercosur in the south. The answer to this question rests in part with the issue of fast-track legislation and the policies of President Obama.

26 Association of SouthEast Asian Nations
ASEAN Goals 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 ASEAN governments’ commitment to deregulation, liberalization, & privatization of their economies Decision to shift economies from commodity-based to manufacturing-based Decision to specialize in manufacturing components in which they have a comparative advantage Japan’s emergence as major provider of technology & capital necessary to upgrade manufacturing capabilities & develop new industries ASEAN = Brunei + Cambodia + Indonesia + Laos + Malaysia + Myanmar + Philippines + Singapore + Thailand + Vietnam ASEAN + 3 = ASEAN + China + Japan + South Korea The primary multinational trade group in Asia is ASEAN. The goals of the group are economic integration and cooperation through complementary industry programs; preferential trading, including reduced tariff and nontariff barriers; guaranteed member access to markets throughout the region; and harmonized investment incentives. Four major events account for the vigorous economic growth of the ASEAN countries and their transformation from cheap-labor havens to industrialized nations: the ASEAN governments’ commitment to deregulation, liberalization, and privatization of their economies; the decision to shift their economies from commodity based to manufacturing based; the decision to specialize in manufacturing components in which they have a comparative advantage (this created more diversity in their industrial output and increased opportunities for trade); and Japan’s emergence as a major provider of technology and capital necessary to upgrade manufacturing capability and develop new industries.

27 A S E A N ASEAN represents a market of 560 million consumers and a GDP of $1.1 trillion. Adding members Cambodia, Laos, and Myanmar was an effort to counter China’s resources of cheap labor and abundant raw materials. The ASEAN-China Free Trade Area, launched on January 1, 2010, is the biggest regional emerging market in the world.

28 APEC Formed 1989 Common goal & commitment to:
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 The other important grouping that encompasses the Asian-Pacific Rim is the Asia-Pacific Economic Cooperation. Formed in 1989, APEC provides a formal structure for the major governments of the region, including the United States and Canada, to discuss their mutual interests in open trade and economic collaboration. APEC is a unique forum that has evolved into the primary regional vehicle for promoting trade liberalization and economic cooperation. APEC includes all the major economies of the region and the most dynamic, fastest-growing economies in the world. APEC has as its common goal a commitment to open trade, to increase economic collaboration, to sustain regional growth and development, to strengthen the multilateral trading system, and to reduce barriers to investment and trade without detriment to other economies.

29 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) members - plagued with financial problems; - conflict within group; - inactivity on part of members Southern African Development Community (SADC) members most advanced & viable of Africa’s regional organizations Africa’s multinational market development activities can be characterized as a great deal of activity but little progress. Despite the large number and assortment of paper organizations, there has been little actual economic integration because of the political instability that has characterized Africa in recent decades and the unstable economic base on which Africa has had to build. The Economic Community of West African States (ECOWAS) and the Southern African Development Community (SADC) are the 2 most active regional cooperative groups. ECOWAS = Benin + Burkina Faso + Cape Verde Islands + Ivory Coast + Gambia + Ghana + Guinea + Guinea Bissau + Liberia + Mali + Niger + Nigeria + Senegal + Sierra Leone + Togo Unfortunately, ECOWAS continues to be plagued with financial problems, conflict within the group, and inactivity on the part of some members. After 30 years, the ECOWAS treaty and its much-defined objectives and the way they are to be achieved over a 15-year period in 3 stages languishes; nothing has been achieved and free trade remains a deferred dream. SADC = Angola + Botswana + DR Congo + Lesotho + Madagascar + Malawi + Mauritius + Mozambique + Namibia + Seychelles + South Africa + Swaziland + Tanzania + Zambia + Zimbabwe The Southern African Development Community is the most advanced and viable of Africa’s regional organizations. Its 14 members encompass a landmass of 6.6 million square kilometers containing abundant natural resources and a population > 200 million. South Africa, the region’s dominant economy, has a GDP > $160 billion, and accounts for 76.8% of SADC market share. After years of negotiations, 11 members of SADC approved a free trade agreement aimed at phasing out at least 85% of tariffs within 8 years, and all tariffs by the end of 2012. Now, non-trade barriers are the biggest hindrance to free trade in this region. The SADC FTA program also includes establishing a Customs Union by 2010, a Common Market by 2015, a monetary Union by 2016 and a single currency by 2018.

30 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. Cecil John Rhodes and other British imperialists in the 1890's had a vision of a free trade zone stretching “from Cape to Cairo”. This would have neatly stitched together their colonies and those of other imperial powers of the nineteenth century.

31 African Economic Community
This article is part of This article is part of This article is part of African Economic Community The African Economic Community (AEC) is an organization of African Union states establishing grounds for mutual economic development among the majority of African states. The stated goals of the organization include the creation of free trade, customs unions, a single market, a central bank, and a common currency, thus establishing an economic and monetary union. members of AEC pillar blocs states signatories to AEC Treaty, but not participating in any pillars

32 AFRICAN Regional Economic Commun-ities
Currently there are multiple regional blocs in Africa, also known as Regional Economic Communities (RECs), many of which have overlapping memberships. The RECs consist primarily of trade blocs and, in some cases, some political and military cooperation. Most of these RECs form the "pillars" of the African Economic Community, many of which also have an overlap in some of their member states. Due to this high proportion of overlap it is likely that some states with several memberships will eventually drop out of one or more RECs. Above is a Euler diagram showing the relationships between various multinational African communities. (A Euler diagram is similar to a Venn diagram.) wikipedia

33 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 The Middle East has been less aggressive than other regions of the world in the formation of successfully functioning multinational market groups. The Arab Common Market has set goals for free internal trade but has not succeeded. The Arab Gulf states, Egypt, and Morocco have worked out an agreement on an Arab Free Trade Area, sometimes called the Greater Arab Free Trade Area (GAFTA). This 2005 agreement is still in its early stages of implementation and its success is thus uncertain. The aim is to integrate the economies of the 22 Arab countries, but before that will be feasible, a long history of border disputes and persisting ideological differences will have to be overcome. This is unlikely in the foreseeable future. Iran, Pakistan, and Turkey, formerly the Regional Cooperation for Development (RCD), have renamed their regional group the Economic Cooperation Organization (ECO). Another activity in the region, led by Iran, is the creation of the Organization of the Islamic Conference (OIC), a common market composed of Islamic countries. A preferential tariff system among the member states of the OIC and the expansion of commercial services in insurance, transport, and transit shipping are among the issues to be debated at the next conference of Islamic countries. The OIC represents 60 countries and > 650 million Muslims worldwide. The member countries’ vast natural resources, substantial capital, and cheap labor force are seen as the strengths of the OIC. Significant weaknesses are historical fractious relationships, divergent ideologies and power struggles.

34 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 The complexion of the entire world marketplace has been changed significantly by the coalition of nations into multinational market groups. To international business firms, multinational groups spell opportunity in bold letters through access to greatly enlarged markets with reduced or abolished country-by-country tariff barriers and restrictions. World competition will intensify as businesses become stronger and more experienced in dealing with large market groups. European and non-European multinationals are preparing to deal with the changes in competition in a fully integrated Europe. In an integrated Europe, U.S. multinationals had an initial advantage over expanded European firms because U.S. businesses were more experienced in marketing to large, diverse markets and are accustomed to looking at Europe as one market. Economic integration also tends to foster political harmony among the countries involved; such harmony leads to stability and peace, which are beneficial to the marketer. The initial aim of a multinational market is to protect businesses that operate within its borders. An expressed goal is to give an advantage to the companies within the market in their dealings with other countries of the market group. Reciprocity is an important part of the trade policy of a unified Europe. If a country does not open its markets to an EU firm, it cannot expect to have access to the EU market. Europeans see reciprocity as a fair and equitable way of allowing foreign companies to participate in the European market without erecting trade barriers, while at the same time giving Europeans equal access to foreign markets.

35 Next class: Case # 2: Nestlé Preparation:
“Case 1-2 Nestlé: The Infant Formula Controversy” ed. J. Alex Murray Next class: Case # 2: Nestlé Preparation: Reading for Nestlé case analysis: Read case study via text book + independent reading Visit Nestlé web site Prepare for class discussion & hand in.


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