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Also known as regional integration, regional economic integration refers to the growing economic interdependence that results when two or more countries within a geographic region form an alliance aimed at reducing barriers to trade and investment. 2. Regional integration results from the formation of a regional economic integration bloc or, simply, an economic bloc. This refers to a geographic area that consists of two or more countries that agree to pursue economic integration by reducing tariffs and other restrictions to the cross-border flow of products, services, capital, and, in more advanced stages, labor. 3. At a minimum, the countries in an economic bloc become parties to a free trade agreement, a formal arrangement between two or more countries to reduce or eliminate tariffs, quotas, and other barriers to trade in products and services. 4. Why would a nation opt to be a member of an economic bloc instead of working toward a system of worldwide free trade? The main reason is that reaching agreement on free trade is much easier in negotiations among a handful of countries than among all the nations in the world. A2 1. Free trade area. A stage of regional integration in which member countries agree to eliminate tariffs and other barriers to trade in products and services within the bloc. Example : NAFTA 2. Customs union. A stage of regional integration in which the member countries agree to adopt common tariff and nontariff barriers on imports from nonmember countries. Example : MERCOSUR. 3. Common market. A stage of regional integration in which trade barriers are reduced or removed, common external barriers are established, and products, services, and factor of production are allowed to move freely among the member countries. Example : The EU. 4. Economic union. A stage of regional integration in which member countries enjoy all the advantages of early stages, but also strive to have common fiscal and monetary policies. Example : A3 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. A4 1. Expand market size. Regional integration greatly increases the scale of the marketplace for firms inside the economic bloc. 2. Achieve scale economies and enhanced productivity. Expansion of market size within an economic bloc gives member country firms the opportunity to increase the scale of operations in both production and marketing, gaining greater concentration and increased efficiency. EU (The Europan Union) EFTA (Europan Free Trade Association) NAFTA (North America Free Trade Agreement) MERCOSUR (El Mecardo Comun del Sur) CARICOM (The Carribean Community) CAN (Comunidad Andina de Naciones) ASEAN (Association of Southest Asian Nations) APEC (Asia Pacific Economic Cooporation) CER (Australia and New Zealand Closer Economic Relations Agreement) Economic Integration in The Middle East and Africa
Cultural and linguistic similarity among the countries in an economic bloc provides the basis for mutual understanding and cooperation. Economic similarity. Loss of national identity. the more likely the economic bloc will succeed. regional integration can give rise to two opposing tendencies. Regional integration can concentrate economic power in the hands of fewer. Initially. 4. The formation of economic blocs also leads to mergers and acquisitions (M&A). Advanced economies. 4. national cultural identity is diluted as the members become more similar to each other. Mergers and acquisitions. 6. On the other hand. Later stages of regional integration require member countries to establish a central authority to manage the bloc’s affairs. regional integration pressures or encourages companies to internationalize into neighboring countries within the bloc. Internationalization by firms inside the economic bloc. 7. The most effective way for a foreign firm to enter an economic bloc is to establish a physical presence there via foreign direct investment (FDI). 2. protections are eliminated that previously shielded smaller or weaker firms from foreign competition. 2. Political similarity. highly competitive industries. Rationalization of operations. sometimes due to rationalization. Many firms must restructure to meet the competitive challenges posed in the new.3. The more similar the economies of the member countries. A8 1. Internationalization by firms from outside the bloc. and well-developed commercial infrastructure. Attract direct investment from outside the bloc. Similarity of culture and language. 5. Post-industrial countries characterized by high percapita income. 3. . On the one hand. Trade creation means trade is generated among the countries inside the economic bloc because. a country that reduces trade barriers is moving toward free trade. 4. When nations join in an economic bloc. One goal of regional integration is to strengthen member countries relative to other nations and world regions. Foreign firms prefer to invest in countries that are part of an economic bloc because factories they build there receive preferential treatment for exports to all member countries within the bloc. enlarged marketplace of regional integration. each member country tends to begin trading more with members than with nonmembers. an economic bloc that imposes external trade barriers is moving away from worldwide free trade. 4. 3. A5 1. Regional products and marketing strategy. B1 1. Corporate restructuring and job loss. As trade and investment barriers decline. increased cross-border contact has a homogenizing effect. Most economic blocs are formed by countries within the same geographic region. 5. 2. Similarity in political systems enhances prospects for a successful bloc. In more advanced stages. more advantaged firms. Failure of small or weak firms. Geographic proximity. It is easier and much less costly to make and sell a few product models rather than dozens. Sacrifice of autonomy. A6 1. Reduced global free trade. Transfer of power to advantaged firms. The creation of an economic bloc decreases the importance of national boundaries. as barriers fall. 3. Acquire stronger defensive and political posture.
chemicals. B4 1. 6. and Lack of Transparency. 5. Red Tape. high-quality roads. 2. Partner with Family Conglomerates. Weak Intellectual Property Protection. dollar. approvals. such as gross national income (GNI) or per-capita GDP. drainage systems. In every country. When evaluating the potential of individual markets. size of the middle class. Third. 4. 2. Second. state enterprises in areas like railways.S. 2. Dominance of Family Conglomerates. market potential indicators. high-quality labor for manufacturing and assembly operations. Political instability is associated with corruption and weak legal frameworks that discourage inward investment and the development of a reliable business environment. Partner Availability and Qualifications. government agencies and state-owned enterprises are an important customer group for three reasons. Developing economies Low-income countries characterized by limited industrialization and stagnant economies. B5 1. Emerging markets. 3. legal. in the early stages of market research. office supplies. banking. sewers. managers examine three important statistics to estimate market potential: 1. motor vehicles) and services (such as architectural. and steel buy goods and services from foreign companies. governments buy enormous quantities of products (such as computers. oil. 3. Target Governments in Emerging Markets. expressed in terms of a reference currency such as the U. Customize Offerings to Unique Emerging Market Needs. furniture. 2. Emerging markets have become important target markets for a wide variety of products and services. Emerging markets have served as excellent platforms for sourcing. managers often start by examining aggregate country data. Even when they exist. and rapid economic growth since the 1980s. Many emerging market economies are dominated by family-owned rather than publicly owned businesses. In advanced economies. and paperwork all delay business activities. laws that safeguard intellectual property rights may not be enforced. or the judicial process may be painfully slow. per-capita income. First. 3. Family conglomerates are key players in their respective economies and have much capital to invest in new ventures. Successful firms develop a deep understanding of the distinctive characteristics of buyers. . B2 1. B3 To overcome these challenges. the middle class represents the segment of people between wealthy and poor. These markets are home to low-wage. airlines. and electrical utilities are taken for granted.2. local suppliers. and distribution channels in emerging markets. Poor Physical Infrastructure. 3. the public sector influences the procurement activities of various private or semi-private corporations. and consulting services). modernization. Former developing economies that have achieved substantial industrialization. In emerging markets and developing economies. Burdensome administrative rules and excessive requirements for licenses. 3. Bureaucracy. Foreign firms should seek alliances with well-qualified local companies in countries characterized by inadequate legal and political frameworks.
Microfinance to Facilitate Entrepreneurship. Skillfully Challenge Emerging Market Competitors. such as low-cost labor. .4.” that assist entrepreneurs to start businesses in poor countries. such as “microcredit” and “microloans. the new global challengers possess various strengths that make them formidable competitors. B6 1. Historically. skilled workforces. and family conglomerates. few firms targeted poor countries because managers assumed there were few profitable opportunities. Microfinance provides small-scale financial services. 2. As the opening vignette shows. government support. Foster Economic Development with Profitable Projects.
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