Global Marketing Management Multinational Strategic Alliances

1. Global Marketing ManagementMultinational Strategic Alliances MKTG 3231-001 Fall 2013 Mrs. Tamara L. Cohen Class #15

2. KEY TERMS • Multinational Market Region • Single European Act • Maastricht Treaty • Economic & Monetary Union €

3. KEY CONCEPTS Free Trade Arearemoves all barriers to trade among members; each nation has its own barriers against non-members. Customs Union=Free Trade Area + common external trade policy Common Market=Customs Union+ free movement of labor & capital Economic Union=Common Market + coordinated economic policies Political Union= Economic Union + coordinated external economic & political policies

4. Building Blocks of Regional Integration Free Trade Area = Customs Union = Common Market = Economic Union = Political Union = all barriers to trade among members removed + common external trade policy + free movement of labor & capital + coordinated economic policies + coordinated external economic & political policies

5. Regional Economic Integration(Regionalization) GOAL = higher living standards through increased cross-border trade and investment.

6. Multinational Market Regions • Evolution & growth of MMRs is most important global trend today • Universal goal is economic benefits for participants + associated peace between and within countries • UN includes efforts towards mutual economic development • WTO wholly dedicated to making trade among nations more efficient

7. World Trade Organization members& observers

8. RECIPE forsuccessful economic unions Mix together, using good-quality ingredients: • Economic Factors • Political Factors • Geographic & Temporal Proximity • Cultural Factors

9. 1. Economic Factors • Markets enlarged throughtariffs • preferential tariff treatment for participating members • common tariff barriers against outsiders • Nations with complementary economic bases • least likely to encounter frictions in development & operation of a common market unit • Economic union must have agreements & mechanisms in place to settle economic disputes • Failure of Latin American Free Trade Association (LAFTA) • result of economically stronger members not allowing for needs of weaker ones

10. 2. Political Factors • State sovereignty • one of most cherished possessions of any nation • relinquished only for promise of significant improvement of national position through cooperation • Importance of political unity to fully achieve all benefits of economic integration • driven EC countries to form the European Union

11. Geographic & Temporal Proximity • Recent research shows that differences across time zones are more important than physical distances • Trade travels more easily in north-south directions than it did in ancient times • Countries that are widely separated geographically have major barriers to overcome in attempting to join economically

12. 4. Cultural Factors The more similar the culture, the more likely a market is to succeed because members understand the outlook & viewpoints of their colleagues. USA has bilateral free trade agreements with Australia, Bahrain, Chile, Israel, Jordan, Morocco, Singapore USA has multilateral agreements: NAFTA & DR-CAFTA (Cultural similarities not always immediately apparent.)

13. Fear of being left out … Countries fear not joining a vital regional market group will doom them to being left on the sidelines of global economic activity.

14. Trade causes Peace? • Democracies cooperate more and fight less Solomon W. Polacheck, 1997 • “Free Trade is God’s diplomacy. There is no other certain way of uniting people in the bonds of peace.” Richard Cobden, 1857 • Dell Theory of Conflict Prevention • “I believe that as time and progress go on there (East Asia and China), the chance for a really disruptive event goes down exponentially.” Michael Dell

15. Global Markets & MMRs Market potential should be viewed in context of regions of world, rather than country by country • globalization of markets • restructuring of Eastern European bloc into independent market-driven economies • Soviet Union dissolving into independent states • worldwide trend toward economic cooperation • enhanced global competition

16. A Brief History of European Integration EFTA European Free Trade Association • formed by Britain for those European nations not willing to join EEC but wanting to participate in FTA • will most probably dissolve as members join either the EEA or the EU EEA European Economic Area = single market with free movement of goods, services, and capital • governed by special Council of Ministers composed of representatives from EEA member nations

17. European Union(EU) • EU evolved after 1,000 years of separatism • 1957 Treaty of Rome established EEC • EU is world’s largest and most secure / successful of all multinational marketing groups, in terms of cooperation and economic importance • € (EURO) = single currency of EU since Jan.1, 2002 • 17 out of 28EU countries use the € • Strategic implications for marketing in Europe

18. European Union (EU) Bumps along the way - traditional protectionism: German British poultry beer Italian pasta Irish eggs & poultry French wine

19. European Economic Area Exhibit 10.2

20. The Commonwealth of Independent States (CIS) • formed after aborted coup against Gorbachev & dissolution of USSR • included remaining 12 republics after Baltic States formed • CIS is loose economic & political alliance with open borders but no central government • 12 members of CIS share common history of central planning • their close cooperation could make change to market economy less painful • differences over economic policy, currency reform, & control of military may break them apart

21. Commonwealth of Independent States

22. NAFTA NAFTA = Canada + Mexico + USA • 1994 ratified and became effective • 2008 all tariffs & barriers dropped • single market of 360 million people, $6 trillion GNP i.e. one of largest and richest markets in world • improves all (most?) aspects of doing business within North America • job losses not as drastic as once feared, in part because maquiladora plants have been set up in anticipation of benefits from NAFTA

23. Latin American Economic Cooperation • MERCOSUR = Mercado Común del Sur = Argentina + Brazil + Paraguay + Uruguay • 2nd largest common-market agreement in the Americas • most influential & successful FTA in South America • founded in 1991 Free trade agreement between EU and MERCOSUR • negotiations since 1999 for 1st region-to-region free trade accord

24. MERCOSUR(MERCOSUL)

25. Latin American Economic Cooperation more • DR-CAFTA= Costa Rica + Dominican Republic + El Salvador + Guatemala + Honduras + Nicaragua + USA • LAIA / ALADI = Latin American Integration Association • CARICOM = Caribbean Community and Common Market • NAFTA to FTAA or SAFTA?

26. ASEAN Association of SouthEastAsian Nations Goals • promote economic, social, and cultural development • safeguard economic and political stability • serve as a forum to resolve disputes fairly and peacefully 4 major events account for the vigorous economic growth of the ASEAN countries • ASEAN governments’ commitment to deregulation, liberalization, & privatization of their economies • Decision to shift economies from commodity-based to manufacturing-based • Decision to specialize in manufacturing components in which they have a comparative advantage • Japan’s emergence as major provider of technology & capital necessary to upgrade manufacturing capabilities & develop new industries

27. A S E A N

28. APEC • Formed 1989 • major governments discuss mutual interests in open trade & economic collaboration • includes all major economies of region & most dynamic, fastest- growing economies in world • Common goal & commitment to: • open trade • increase economic collaboration • sustain regional growth & development • strengthen multilateral trading system • reduce barriers to investment & trade without compromising other economies

29. African Unions • Little actual economic integration • characterized by political instability in recent decades • unstable economic base • 2 most active regional cooperative groups: Economic Community of West African States (ECOWAS) - 15 members - plagued with financial problems; - conflict within group; - inactivity on part of members Southern African Development Community (SADC) - 14 members • most advanced & viable of Africa’s regional organizations

30. African Free Trade Zone • Formed October 2008 • AFTZ = SADC + Common Market for Eastern & Southern Africa + East African Community • 26 countries; GDP $624 billion • Cecil John Rhodes’ dream of free trade zone “from Cape to Cairo” • Angola, Botswana, Burundi, Comoros, Djibouti, Democratic Republic of Congo, Egypt, Eritrea, Ethiopia, Kenya, Lesotho, Libya, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Rwanda, Seychelles, Swaziland, South Africa, Sudan (?), Tanzania, Uganda, Zambia & Zimbabwe • Only natural member of AFTZ left in cold was Somalia, due to 20 years of civil strife that has left most of that country without a functioning government.

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32. AFRICAN Regional Economic Commun-ities

33. Middle East • Middle East has been less aggressive in forming successful multi-market groups • long history of border disputes & persistent ideological differences must be overcome • Arab Free Trade Area (GAFTA) • Economic Cooperation Organization (ECO) • Organization of the Islamic Conference (OIC) • 60 countries • > 650 million Muslims worldwide • member countries’ vast natural resources, substantial capital, & cheap labor force are strengths of the OIC

34. Keys to success in Strategic Global Alliances • Multinational market groups [ opportunities • via access to greatly enlarged markets with reduced or abolished country-by-country tariff barriers & restrictions • World competition will intensify • as businesses become stronger & more experienced in dealing with large market groups • Opportunities • economic integration creates large mass markets • Market barriers • primary aim of multinational market is to protect businesses operating within its borders • Reciprocity • if a country does not open its market to a firm within its economic alliance, it cannot expect to have access to the alliance’s markets

35. Next class: Case # 2: Nestlé Preparation: Reading for Nestlé case analysis: Reading #12 in Course Pack + independent reading Visit Nestlé web site www.nestle.com Prepare for class discussion & hand in.