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Cateora Ch10 lecture note

Chapter 10
Europe, Africa, and
the Middle East
rHill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill
Learning Objectives
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10-1 The reasons for economic union
10-2 Patterns of international cooperation 10-3
The evolution of the European Union
10-4 Evolving patterns of trade as eastern Europe and
the former Soviet states embrace free-market
10-5 Strategic implications for marketing in the region
10-6 The size and nature of marketing opportunities in
the European/African/Middle East regions
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Multinational Market Regions
Group of countries that:
• Seek mutual economic benefit and associated peace
• Reduce interregional trade and tariff barriers
• Economic cooperative agreements Free trade the
ultimate goal
• Alliances concern some
• Fear of being excluded
© McGraw-Hill Education
La Raison d’Etre 1 of 5
Economic union
• Success requires favorable economic, political, cultural,
and geographic factors
• Major flaws in one factor could destroy union unless other factors
strong enough to offset weakness
• Nations must give up part of their sovereignty
• Advantages of union must be clear-cut and significant
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La Raison d’Etre 2 of 5
• Benefits must greatly outweigh the disadvantages
Economic Factors
• Every union shares development and enlargement of
market opportunities as basic orientation
Preferential tariff treatment for participants
Common tariff barriers against outsiders
• Stimulates internal economic development for all
• Strong unions can settle economic disputes
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La Raison d’Etre 3 of 5
• Agreements and mechanisms must be in place to survive
• Benefits must outweigh cost of individual differences
Political Factors
• Equally important as economic factors
• Although economic factors are the basic catalyst for formation of
• Participating countries must be generally compatible
• Similar aspirations important
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La Raison d’Etre 4 of 5
• Countries won’t surrender part of national sovereignty if not
• Unions typically formed in response to external threats
Geographic and Temporal Proximity
• Not imperative, but facilitates functioning of market
Transportation networks more developed in close countries
• Distance between time zones are most important
• Trade tends to travel more easily in north-south directions than it
did in ancient times
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La Raison d’Etre 5 of 5
• Issues of legal and illegal immigration important
• Promotes economic integration among closer countries
Cultural Factors
• Cultural similarity eases shock of economic cooperation
• Members understand outlook and views of colleagues
• Agreements between similar countries most likely to succeed
• Current agreements extend beyond cultural boundaries
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La Raison d’Etre 6 of 5
• European Union very culturally diverse
Language not as much of a barrier as expected
Religion still seems to be an issue
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Patterns of Multinational Cooperation 1 of 6
1. Regional Cooperation Groups
2. Free Trade Area
3. Customs Union
4. Common Market
5. Political Union
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Patterns of Multinational Cooperation 2 of 6
Regional cooperation groups
• Also called regional cooperation for development
• Most basic economic integration and cooperation
• Each country makes advance commitment
• Participate in financing a new joint venture
• Purchase a specified share of the output of the venture
© McGraw-Hill Education
Patterns of Multinational Cooperation 3 of 6
• Helps develop mutually beneficial industries
Free trade area(FTA)
• Agreement to reduce or eliminate customs duties and
nontariff trade barriers
• Members maintain tariff schedules for external
• Provides members with a mass market without
barriers to impede flow of goods and services
© McGraw-Hill Education
Patterns of Multinational Cooperation 4 of 6
• Requires more cooperation and integration than the
Costums union
• Next stage in economic cooperation after FTA
• Enjoys FTA’s reduced or eliminated internal tariffs
• Adds common external tariff on imports from outside of union
• Countries with customs unions
© McGraw-Hill Education
Patterns of Multinational Cooperation 5 of 6
• France and Monaco, Italy and San Marino, Switzerland and
• The European Union was a customs union at one point
Common market
• All internal tariffs and restrictions eliminated fully
• Adopts set of common external tariffs
• Free flow of goods,services(labor), and capital
© McGraw-Hill Education
Patterns of Multinational Cooperation 6 of 6
• Economy unified, but each member nation maintains
political sovereignty
Political union
• Most fully integrated form of regional cooperation
• Complete economic and political integration
• Either voluntary or enforced
• If voluntary, the union is referred to as a commonwealth
© McGraw-Hill Education
Patterns of Multinational Cooperation 7 of 6
• Two political unions came to existence in the 1990s
• Commonwealth of Independent States (CIS)
• European Union (EU); threated by recent Brexit
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Global Markets and Multinational Groups
Reasons to view market potential in regional context
• Globalization of markets
• Restructuring of eastern European bloc into independent
market-driven economies
• Dissolution of Soviet Union into independent states
• Worldwide trend toward economic cooperation
• Enhance global competition
Europe 1 of 8
European Integration
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• Every type of multinational market grouping exists
• No other group more important than the European Union
• Made progress toward complete economic and political union
• Economic growth prevails even after U.K.’s exit
• A lot of diversity to overcome
• Language and cultural differences
• Individual national and political differences
• Centuries-old restrictions to protect local national markets
Exhibit 10.2 The European Economic
Area: EU, EFTA, and Associates
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Jump to long description.
Exhibit 10.3
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From the
European Coal and Steel
Community to
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© McGraw-Hill Education
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Europe 2 of 8
European Union Institutions
• European comission
Initiates policy and supervises its observance by member states
• Council of Ministers
• The decision-making body; determines which proposals of the
Single European Act to accept as binding to members
• The European Parliament
• Passes and amends legislation
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3 of 8
• Court of justuice
The Supreme Court of the European Union
Economic and monetary Union(EMU)
• Provision of the Maastricht Treaty
• Established creation and implementation of the euro
• A common currency for all EU members
• Established central bank
© McGraw-Hill Education
Europe 4 of 8
• Helped fix conversion rates
• Completed circulation of euro banknotes and coins
• Led to 12 member states employing the euro starting in 2001
Expansion of the European Union
• Enlargement once most important item on EU’s
• Many would agree that EU has been successful • Four
categories of long-term challenges facing Union
© McGraw-Hill Education
5 of 8
1. Effects of Brexit; will it cause more disintegration?
2. Improving union’s economic performance
3. Deciding how to limit political aspects of union
4. Deciding about further enlargement
© McGraw-Hill Education
British Exit from the European Union (Brexit)
• Voted to leave on June 23, 2016; two years to negotiate
• Not comfortable with loss of national sovereignty
• Britain is EU’s second largest economy and is seen as a
counterweight to Germany
• Britain will likely see significant short- to medium-term
costs based on this decision
• Less likely to attract inward investment from foreign multinationals
© McGraw-Hill Education
Europe 5 of 8
• Exports to EU may fall
• Some MNCs may move operations to other EU countries
Eastern Europe and the Baltic States
• Sattelite nations of former soviet union
• Moving steadily toward post-communist market reforms
• New business opportunities emerging
• “Chaotic with big risks; exciting place with untold opportunities”
• Continuing to try to adjust to changes
© McGraw-Hill Education
Europe 6 of 8
• Political, social, and economic realities of shift from restricted
Marxist-social system to version of free market and capitalism
Eastern europe
Dangerous to generalize, each country unique
• Efforts of most countries
• Privatizing state-owned enterprises, establishing free market pricing
systems, relaxing import controls, combating inflation
• Different levels of progress due to different paths
• Moving quickly toward free market beneficial
© McGraw-Hill Education
Europe 7 of 8
• Allowed transformation to be guided mainly by spontaneity of
innovative markets rather than government planners, technocrats
• Most countries continue to make progress
The Baltic states
• Exemplify the difference policy-implementation can make
• Estonia, Latvia, and Lithuania
• All three countries started out with roughly same legacy
© McGraw-Hill Education
Europe 8 of 8
• Inefficient industry and Soviet-style command economies
• Estonia acted quickly
• Dropped the ruble, privatized companies and land, let struggling
banks fail, adopted freest trading regime of all three countries
• Resulted in greater economic growth than other Baltic states
Commonwealth of Independant states (CIS)
• Formed after dissolution of the Soviet Union
• Baltic states first to claim independence; separate
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Europe 9 of 8
• Remaining 11 republics called Newly Independent States (NIS)
• The NIS regrouped into the CIS
• Loose economic, political alliance with open borders but no central
• Ties between Slavic and Central Asian republics tenuous
• Despite threats, many nations economically successful
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Africa 1 of 2
Growth in many countries
• Despite economic, political, and environmental issues
• In part stimulated by increasing foreign direct
• Particularly from China for infrastructure projects
• Growth remarkable in sub-Saharan countries
• Expected to continue over next five years
• Africa a paradox
© McGraw-Hill Education
• Mostly poor population; land rich with opportunities
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© McGraw-Hill Education
Africa 2 of 2
Loosely defined African Union
• Comprised of all countries on continent but Morocco
• Multinational market integration is poor
• Although many organizations, hindered by political instability
Regional Cooperative Groups
• ECOWAS – Economic Community of West African States
• SADC – Southern African Development Community
© McGraw-Hill Education
• EAC – East African Community
Middle East/North Africa (MENA) 1 of 2
Ongoing political turmoil in region
• Accelerated in 2011
• Has resulted in economic disaster for several countries
• Long-term consequences for international commerce unknown
• The least aggressive region in forming multinational
market groups
• The Arab Common Market set goals for free internal trade
© McGraw-Hill Education
• Not successful yet due to disputes and differences
Middle East/North Africa (MENA) 2 of 2
Economic Communities
• Greater Arab Free Trade Area (GAFTA)
• Persian Gulf, Egypt, Morocco
• In early stages of implementation; 2005 agreement
• Economic Cooperation Organization (ECO)
• Iran, Pakistan, Turkey
• Goal to develop infrastructure and reduce trade barriers
© McGraw-Hill Education
• Organization of the Islamic Conference (OIC)
• Led by Iran; composed of Islamic countries
• A strong common market, but hindered by conflict
© McGraw-Hill Education
© McGraw-Hill Education
Implications of Market Integration 1 of 5
Strategic Implications
• Multinational groups source of opportunity for firms
• Production, finance, labor, marketing decisions are
• World competition continues to intensify
Businesses becoming stronger and more experienced
Regulation of business activities strong in multinationals
• Strategy important to navigate global market
© McGraw-Hill Education
Implications of Market Integration 2 of 5
• Economic integration creates mass market
Combinations of markets have new dimensions and significance
Important to businesses used to mass production and distribution
Economies of scale and marketing efficiencies can be achieved
Benefits often passed along as lower prices
Leads to greater purchasing power
• Most multinationals have programs to foster economic growth
Market Barriers
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Implications of Market Integration 3 of 5
• Created to protect businesses that operate within
multinational market’s boarders
• Members of market are advantaged
• Companies willing to invest in production facilities in multinational
markets may also benefit from protectionist measures
• Challenges to exporters
Market Metrics
• Used to determine size and character of a market
• Three most disparate metrics across cultures
© McGraw-Hill Education
Implications of Market Integration 4 of 5
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Standarts if living
Costumer purchases
Implications of Market Integration 5 of 5
Marketing Mix Implications
• Companies adjust strategies to reflect anticipated market
changes in the single European market
• Price standardization due to parallel importation
• Fairer competition due to single currency (EU)
• Reduced number of brands due to standardization
• Increased competition among retailers
• International marketers should view integration positively
© McGraw-Hill Education
Implications of Market Integration 6 of 5
• Serves globalization and harmonization of world trade
Leads to lower cost of business, more choices for costumers, more
opportunities for marketers
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