1. Developed by Cool Pictures and MultiMedia Presentations Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Developed by Cool Pictures and MultiMedia Presentations Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

2. Developed by Cool Pictures and MultiMedia Presentations Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. What We Are Striving To Accomplish 1.To review types of economic integration among countries. 2.To examine the costs and benefits of integrative arrangements. 3.To understand the structure of the European Union and its implications for firms within and outside Europe. 4.To examine the North American Free Trade Agreement (NAFTA) and other integration agreements that affect trade with and within Latin America. 5.To explore moves toward economic integration in Africa, Asia, the Indian subcontinent, and the Middle East. 6.To consider the strategic challenges that economic integration presents for international managers.

3. Developed by Cool Pictures and MultiMedia Presentations Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Levels of Economic Integration Forms of Economic Integration in Regional Markets Trading Bloc Agreements among countries to establish links through movement of goods, services, capital, and labor across borders.

4. Developed by Cool Pictures and MultiMedia Presentations Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Costs and Benefits of Economic Integration  Trade creation and diversion.  Effects of integration on import prices, competition, economies of scale, and factor productivity.  Benefits of regionalism versus nationalism.

5. Developed by Cool Pictures and MultiMedia Presentations Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Trade Creation and Diversion  Trade Creation The benefit to a particular country when a group of countries trade a product freely among themselves but maintain common barriers to trade with nonmembers.  Trade Diversion The cost to a particular country when a group of countries trade a product freely among themselves but maintain common barriers to trade with nonmembers

6. Developed by Cool Pictures and MultiMedia Presentations Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Effects of Integration Reduction of import prices due to trade blocs. Competing firms increase reducing monopolies. Internal economies of scale. External economies of scale. Free movement of labor fosters higher degree of cross-cultural understanding. Poorer countries may lose badly needed investments and its most talented workers.

7. Developed by Cool Pictures and MultiMedia Presentations Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Regionalism vs. Nationalism Major Regional Trade Organizations Integration requires the surrender of national power and self-determination. Nations are reluctant to surrender a measure of their autonomy.

8. Developed by Cool Pictures and MultiMedia Presentations Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Development of the European Union Membership of the European Union 194019601970198019902000 1950 1948 - OEEC est. 1957 - EEC est. Treaty of Rome. 1960- EFTA est. Administration of CAP 1992 - White Paper 1987- Single European Act. 1985 - White Paper policy paper pub. 1991- Maastricht Treaty 1994 - European Union created European Union

9. Developed by Cool Pictures and MultiMedia Presentations Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Implications of Integrated European Market Economic growth Elimination of transportation costs. Economies of scale. More intense competition among EU companies. Fortress Europe

10. Developed by Cool Pictures and MultiMedia Presentations Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. North American Economic Integration U.S. - Canada Free Trade Agreement Effective January 1, 1989 Eliminated duties in three stages between 1989-1999 North American Free Trade Agreement Negotiations began in 1991 U.S. - Canada - Mexico 400 million consumers with total output over $10 trillion - today

11. Developed by Cool Pictures and MultiMedia Presentations Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. NAFTA - Gains and Losses Overall U.S. wages and employment for unskilled labor will fall. Maquiladoras in Mexico will increase due to plentiful labor, low pay and benefits, and lax work regulations. Recent studies have put job gain or loss at almost a washout despite previous fears.

12. Developed by Cool Pictures and MultiMedia Presentations Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Other Economic Alliances South American Trading Bloc - Mercosur 1995 - Brazil, Argentina, Paraguay, Uruguay Andean Common Market - ANCOM 1991 - Boliva, Colombia, Ecuador, Peru, Venezuela Central American Common Market - CACM 1960 - Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua Caribbean Common Market - CARICOM 1968 - Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Kitts-Nevis, St. Lucia, St. Vincent, the Grenadines, Free Trade Area of the Americas 2005?? - Hemispheric trading area from Point Barrow, Alaska to Tierra del Fugeo, Argentina

13. Developed by Cool Pictures and MultiMedia Presentations Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Integration in Asia Regional integration Association of Southeastern Asian Nations (ASEAN) South Asian Association for Regional Cooperation (SAARC) African Alliances - ECOWAS, COMESA, CEEAC, SACU, SADC, EAC and finally the African Union (AU) Arab Maghreb Union and Gulf Cooperation Council (GCC) Volatile market prices for primary goods spurred need for cartels and commodity price agreements.

14. Developed by Cool Pictures and MultiMedia Presentations Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Economic Integration and the International Manager Four different perspectives: Assessment of the effects of change exploit change-readiness of market Development of long-term strategic planning acquisitions or alliances? Reorganization more centralized authority, emphasis on cross-cultural consumer behavior especially in marketing and advertising Lobbying for favorable trade terms takes place on multiple levels simultaneously