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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
Regional integration can concentrate economic power in the hands of fewer. Political similarity. 7. The formation of economic blocs also leads to mergers and acquisitions (M&A). highly competitive industries. A6 1. It is easier and much less costly to make and sell a few product models rather than dozens. each member country tends to begin trading more with members than with nonmembers. Geographic proximity. Many firms must restructure to meet the competitive challenges posed in the new. Post-industrial countries characterized by high percapita income. Cultural and linguistic similarity among the countries in an economic bloc provides the basis for mutual understanding and cooperation. In more advanced stages. an economic bloc that imposes external trade barriers is moving away from worldwide free trade. On the other hand. One goal of regional integration is to strengthen member countries relative to other nations and world regions. The creation of an economic bloc decreases the importance of national boundaries. sometimes due to rationalization. On the one hand. Failure of small or weak firms. regional integration pressures or encourages companies to internationalize into neighboring countries within the bloc. 5. When nations join in an economic bloc. 4. As trade and investment barriers decline. The more similar the economies of the member countries. Internationalization by firms inside the economic bloc. 4.3. Reduced global free trade. 6. Corporate restructuring and job loss. Advanced economies. 4. 3. the more likely the economic bloc will succeed. as barriers fall. protections are eliminated that previously shielded smaller or weaker firms from foreign competition. enlarged marketplace of regional integration. Economic similarity. Regional products and marketing strategy. 2. Mergers and acquisitions. Initially. 3. and well-developed commercial infrastructure. Internationalization by firms from outside the bloc. 5. B1 1. 3. Rationalization of operations. 4. national cultural identity is diluted as the members become more similar to each other. Trade creation means trade is generated among the countries inside the economic bloc because. increased cross-border contact has a homogenizing effect. . more advantaged firms. Similarity in political systems enhances prospects for a successful bloc. Attract direct investment from outside the bloc. A5 1. Loss of national identity. Later stages of regional integration require member countries to establish a central authority to manage the bloc’s affairs. Most economic blocs are formed by countries within the same geographic region. 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). a country that reduces trade barriers is moving toward free trade. 2. Acquire stronger defensive and political posture. 2. A8 1. regional integration can give rise to two opposing tendencies. Similarity of culture and language. Sacrifice of autonomy. Transfer of power to advantaged firms. 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.
expressed in terms of a reference currency such as the U. laws that safeguard intellectual property rights may not be enforced. In advanced economies. approvals. Former developing economies that have achieved substantial industrialization. Family conglomerates are key players in their respective economies and have much capital to invest in new ventures. Many emerging market economies are dominated by family-owned rather than publicly owned businesses. First. Foreign firms should seek alliances with well-qualified local companies in countries characterized by inadequate legal and political frameworks. in the early stages of market research. 2. sewers. B5 1. modernization. per-capita income. managers examine three important statistics to estimate market potential: 1. banking. Weak Intellectual Property Protection. airlines. Target Governments in Emerging Markets. furniture.2. B4 1. Emerging markets have become important target markets for a wide variety of products and services. Dominance of Family Conglomerates.S. high-quality roads. 5. When evaluating the potential of individual markets. Political instability is associated with corruption and weak legal frameworks that discourage inward investment and the development of a reliable business environment. oil. motor vehicles) and services (such as architectural. 2. Successful firms develop a deep understanding of the distinctive characteristics of buyers. 2. In every country. such as gross national income (GNI) or per-capita GDP. or the judicial process may be painfully slow. market potential indicators. Bureaucracy. governments buy enormous quantities of products (such as computers. 3. office supplies. These markets are home to low-wage. and distribution channels in emerging markets. Red Tape. Second. 3. 4. state enterprises in areas like railways. and electrical utilities are taken for granted. and Lack of Transparency. 3. and consulting services). dollar. chemicals. Partner Availability and Qualifications. 3. Third. Burdensome administrative rules and excessive requirements for licenses. 2. Emerging markets have served as excellent platforms for sourcing. the middle class represents the segment of people between wealthy and poor. Customize Offerings to Unique Emerging Market Needs. B3 To overcome these challenges. Poor Physical Infrastructure. Even when they exist. managers often start by examining aggregate country data. and paperwork all delay business activities. Developing economies Low-income countries characterized by limited industrialization and stagnant economies. . B2 1. and steel buy goods and services from foreign companies. 6. high-quality labor for manufacturing and assembly operations. legal. and rapid economic growth since the 1980s. drainage systems. size of the middle class. the public sector influences the procurement activities of various private or semi-private corporations. local suppliers. 3. government agencies and state-owned enterprises are an important customer group for three reasons. In emerging markets and developing economies. Emerging markets. Partner with Family Conglomerates.
” that assist entrepreneurs to start businesses in poor countries. Foster Economic Development with Profitable Projects. such as “microcredit” and “microloans. B6 1. Microfinance provides small-scale financial services. Microfinance to Facilitate Entrepreneurship. government support. Skillfully Challenge Emerging Market Competitors. and family conglomerates. Historically. 2. the new global challengers possess various strengths that make them formidable competitors. such as low-cost labor. few firms targeted poor countries because managers assumed there were few profitable opportunities.4. As the opening vignette shows. . skilled workforces.
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