International Marketing
15th edition
Philip R. Cateora, Mary C. Gilly, and John L. Graham
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Introduction
10
• Multinational market regions – those groups of
countries that seek mutual economic benefit from
reducing trade and tariff barriers
• The world is awash in economic cooperative
agreements as countries look for economic alliances
to expand access to free markets
– WTO – 153 members and 30 observers
• Governments and businesses worry that the EU,
NAFTA, and other cooperative trade groups will
become regional trading blocs without internal trade
restrictions but with borders protected from
outsiders
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Overview
10
The reason for economic union
Patterns of international cooperation
The evolution of the European Union
Strategic implications for marketing in Europe
Evolving patterns of trade as eastern Europe and the
former Soviet states embrace the free-market system
• The trade linkage of NAFTA and South America and
its regional effects
• The development of trade within the Asia-Pacific Rim
•
•
•
•
•
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Global Perspective – Might Free Trade
Bring Peace to the Middle East?
10
• Just like NAFTA and EU, can there be a MEU (Middle
Eastern Union) in the war-torn Middle East?
• Jerusalem is important to Christians (associations
with Christ), Jews (center of their religion), and
Muslims (an important spiritual place)
• Religious tourism alone brought in $3.2 billion in
revenues in 2000
• Middle East has a lot of potential. Jared Diamond,
Pulitzer Prize winner, believes that the Middle East
was the cradle of civilization and only one can imagine
what free trade in the area would produce
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La Raison d’Etre
10
• Successful economic union
– Requires favorable economic, political, cultural, and
geographic factors as a basis for success
• The advantages of economic union must be clear-cut
and significant
– Benefits must greatly outweigh the disadvantages before
nations forgo any part of their sovereignty
• In the past, a strong threat to the economic or political
security of a nation was the impetus for cooperation
• 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
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Economic Factors
10
• Markets are enlarged through
– Preferential tariff treatment for participating members
– Common tariff barriers against outsiders
• Nations with complementary economic bases
– Least likely to encounter frictions in the development and
operation of a common market unit
• Economic union must have agreements and mechanisms
in place to settle economic disputes
• The demise of the Latin American Free Trade
Association (LAFTA)
– Result of economically stronger members not allowing for
the needs of the weaker ones
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Political Factors
10
• State sovereignty
– One of the most cherished possessions of any
nation
– Relinquished only for a promise of significant
improvement of the national position through
cooperation
• The importance of political unity to fully achieve
all the benefits of economic integration
– Has driven EC countries to form the European
Union
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Geographic and Temporal Proximity
and Cultural Factors
10
• Geographic and temporal proximity
– Recent research demonstrates that differences across
time zones are more important than physical distances
– Trade tends to travel more easily in north-south
directions then it did in ancient times
– Countries that are widely separated geographically have
major barriers to overcome in attempting economic
fusion
• Cultural factors
– The more similar the culture, the more likely a market is
to succeed because members understand the outlook
and viewpoints of their colleagues
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Patterns of
Multinational Cooperation (1 of 3)
10
• Regional cooperation groups
– Governments agree to participate jointly to
develop basic industries beneficial to each
economy
• Free trade area
– An agreement between two or more countries
• To reduce or eliminate customs duties and
nontariff trade barriers among partner
countries
• Members maintain individual tariff schedules
for external countries
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Patterns of
Multinational Cooperation (2 of 3)
10
• Customs union
– Enjoys free trade area’s reduced or eliminated
internal tariffs
– Adds a common external tariff on products
imported from countries outside the union
• Common market
– Eliminates all tariffs and other restrictions on
internal trade,
– Adopts a set of common external tariffs
– Removes all restrictions on the free flow of capital
and labor among member nations
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Patterns of
Multinational Cooperation (3 of 3)
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• Political union
– Involves complete political and economic
integration, either voluntary or enforced
– Commonwealth – a voluntary organization that
provides for the loosest possible relationship
classified as economic integration
– Two new political unions came into existence in
the 1990s
• The Commonwealth of Independent States
(CIS)
• The European Union (EU)
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Global Markets and
10
Multinational Market Groups
• Market potential needs to be viewed in the
context of regions of the world rather than
country by country
– The globalization of markets
– The restructuring of the Eastern European bloc
into independent market-driven economies
– The dissolution of the Soviet Union into
independent states
– The worldwide trend toward economic
cooperation
– Enhanced global competition
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Global Markets and
10
Multinational Market Groups
•
•
•
•
•
Europe
Eastern Europe and the Baltic States
Common wealth of Independent States (CIS)
Africa
Middle East
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European Market Regions 10
Fundamental Market Metrics
Exhibit 10.1
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The European Economic Area
10
Exhibit 10.2
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European Union
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16
From the European Coal and Steel 10
Community to Monetary Union
Exhibit 10.3
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European Integration
10
• From its beginning, the EU has made progress
toward achieving the goal of complete economic
integration and, ultimately, political union
• But it had to deal with language and cultural
differences, individual national interests, political
differences, and centuries-old restrictions designed
to protect local national markets
• Through it all, the EU has come out successful
• Although complete integration has not been
achieved, the final outcome of full economic and
political integration seems more certain now
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European Union (1 of 2)
10
• Three legal instruments:
– Regulations binding the member states directly
and having the same strength as national laws
– Directives also binding the member states but
allowing them to choose the means of execution,
and
– Decisions addressed to a government, an
enterprise, or an individual binding the parties
named
• Over the years, the EU has gained an increasing
amount of authority over its member states
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European Union (2 of 2)
10
• European Union institutions are:
– The European Commission (supervises
executions of laws and policies)
– The Council of Ministers (decision making body)
– The European Parliament (amend and adopt
legislation; also has extensive budgetary powers)
– The European Court of Justice (judicial – passing
judgments on the interpretation of points on the
EU law)
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Economic and
Monetary Union (EMU)
10
• It established the parameters of the creating of a
common currency for the EU, the “Euro” and
established a timetable for its implementation
• In 2002, a central bank was established, conversion
rates were fixed, circulation of Euro bank notes and
coins was completed and the legal tender status of
participating members’ bank notes and coins was
cancelled
• Beginning January 1, 2001, Austria, Belgium,
Finland, France, Germany, Greece, Ireland, Italy,
Luxemburg, the Netherlands, Portugal, and Spain
employed the Euro
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The Euro
10
Exhibit 10.4
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Expansion of the
European Union
10
• http://europa.eu/abc/european_countries/eu_me
mbers/index_en.htm - shows the member states of
the European Union
• Ten new countries were added in 2004 and as of
today the EU boasts 27 nations with 4 more awaiting
membership
• In 2007, the EU celebrated its golden anniversary
and most would agree that it has been a tremendous
success, delivering peace and prosperity to hundreds
of millions of people that previously had lived with
frequent wars and accompanying economic and
social hardships
Back
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Eastern Europe
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10
24
Eastern Europe
and the Baltic States
10
• Eastern Europe and the Baltic states, satellite nations
of the former Soviet Union, have moved steadily
toward establishing postcommunist market reforms
• New business opportunities are emerging almost daily,
and the region is described as anywhere from chaotic
with big risks to an exciting place with untold
opportunities
• Countries in both these regions continue to adjust to
the political, social, and economic realities of changing
from the restrictions of a Marxist-socialist system to
some version of free markets and capitalism
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Eastern Europe
10
• It is dangerous to generalize about eastern Europe
because each of the countries has its own economic
problems and is at a different stage in its evolution from
a socialist to a market-driven economy
• Most eastern European countries are privatizing stateowned enterprises, establishing free market pricing
systems, relaxing import controls and wrestling with
inflation
• The Czech Republic has fared better than other eastern
European countries; Yugoslavia has been plagued with
ethnic violence; some countries have become members
of the Organization for Economic Cooperation and
Development (OECD)
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The Baltic States
10
• Estonia, Latvia, and Lithuania are prime examples of the
difference that right policies can make. All three
countries started off with roughly the same legacy of
inefficient industry and Soviet-style command
economies
• Since 1991, Estonia’ s economic reform policy has led to a
liberalized, nearly tariff-free, open-market economy
• The most significant hurdle for U.S. trade and
investment has been government bureaucracy,
corruption, and organize crime, found in Latvia and
Lithuania
• All three countries are members of WTO and, as of 2004,
EU members
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The Commonwealth
10
of Independent States (CIS)
• Formed after aborted coup against Gorbachev and
dissolution of USSR
– Included the remaining 12 republics after the
formation of the Baltic States
• The CIS is a loose economic and political alliance
with open borders but no central government
• The 12 members of the CIS share a common history
of central planning
– Their close cooperation could make the change to a
market economy less painful
– Differences over economic policy, currency reform,
and control of the military may break them apart
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Commonwealth
10
of Independent States (CIS)
Exhibit 10.5
Back
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Africa
10
• Little actual economic integration
– Characterized by political instability in recent
decades
– Unstable economic base
• All the countries on the continent (save
Morocco) have joined a loosely defined African
Union
• The efforts of the UN to bring about economic
integration has been hampered by governmental
inexperience, undeveloped resources, labor
problems, and chronic product shortage
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Regional Groups - Africa
10
• Economic Community of West African States
(ECOWAS) – 15-nation group
– Plagued with financial problems, conflict within
the group, and inactivity
• Southern African Development Community
(SADC)
–
Most advanced and viable of Africa’s regional
organizations
• East African Community (EAC)
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African Union Countries
and Other Market Groups Fundamental10
Market Metrics
Exhibit 10.6
Back
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African Union Countries
and Other Market Groups Fundamental10
Market Metrics (continued)
Exhibit 10.6
Back
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Middle East
10
• Middle East has been less aggressive in the formation of
successfully functioning multinational market groups
– A long history of border disputes and persisting ideological
differences will have to be overcome
• Greater Arab Free Trade Area (GAFTA)
• Economic Cooperation Organization (ECO)
• Creation of the Organization of the Islamic Conference
(OIC)
– Represents 60 countries and over 650 million Muslims
worldwide
– Member countries’ vast natural resources, substantial
capital, and cheap labor force are seen as the strengths of
the OI
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Implications of
Market Integration
10
• Strategic Implications
• Opportunities
• Market Barriers
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Strategic Implications
10
• Production, financing, labor, and marketing
decisions are affected by the remapping of the
world into market groups
• World competition will continue to intensify as
businesses become stronger and more
experienced in dealing with large market groups
• Despite the problems and complexities of
dealing with the new markets, the overriding
message to the astute international marketer
continues to be opportunity and profit potential
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Opportunities
10
• Large markets are particularly important to
businesses accustomed to mass production and
mass distribution because of the economies of
scale and marketing efficiencies that can be
achieved
• Most multinational groups have coordinated
programs to foster economic growth as part of
their cooperative efforts so as to take advantage
of increasing purchasing power, improving
regional infrastructure, and fostering economic
development
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Market Barriers
10
• The initial aim of a multinational market is to
protect businesses that operate within its
borders
• However, companies willing to invest in
production facilities in multinational markets
may benefit from protectionist measures because
these companies become part of the market,
putting exporters in a considerably weaker
position
• The major problem for small companies may be
adjusting to the EU standards
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Market Metrics
10
• Three tables representing the fundamental
metrics reflecting the size and character of
markets in the eight most populous countries in
the greater region of Europe, Africa, and the
Middle East
• Exhibit 10.7 presents standards of living across
the eight countries
• Exhibit 10.8 compares the infrastructure of these
eight countries
• Exhibit 10.9 enumerates the consumption
patterns in these eight countries
Next
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Standard of Living in the Eight 10
most populous countries
Exhibit 10.7
Back
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Infrastructures of the Eight
most populous countries
10
Exhibit 10.8
Back
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Consumption Patterns in the 10
Eight most populous countries
Exhibit 10.9
Back
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Marketing Mix Implications
10
• In the past, companies often charged different
prices in different European markets such as
Colgate Palmolive
• As long as products from lower-priced markets
could not move to higher-priced markets,
differential price schemes worked as in the case
of Badedas Shower Gel
• Companies initiating uniform pricing policies
are reducing the number of brands to focus on
advertising and promotion efforts as with Nestle
and Unilever
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Summary (1 of 2)
10
• Marketing efficiency affected by:
–
–
–
–
Development of mass markets
Encouragement of competition
Improvement of personal income
Various psychological market factors
• Production efficiency
– Derives from specialization
– Mass production for mass markets
– Free movement of the factors of production
• Multinational market groups provide great
opportunity for the creative marketer
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Summary (2 of 2)
10
• Market groupings make it economically feasible
to enter new markets and to employ new
marketing strategies
• Market groupings intensify competition by
protectionism within a market group but may
foster greater protectionism between regional
markets
• Mercosur and ASEAN+3 suggest the growing
importance of economic cooperation and
integration
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