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International Marketing

15th edition

Chapter 10
Europe, Africa,
and the Middle East

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

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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

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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?

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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 dEtre

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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

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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

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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

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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)

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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)

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Customs union
Enjoys free trade areas 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)
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


Exhibit 10.2

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European Union

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From the European Coal and Steel 10


Community to Monetary Union
Exhibit 10.3

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European Integration

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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)

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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)

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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)

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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

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Exhibit 10.4

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Expansion of the
European Union

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http://europa.eu/abc/european_countries/eu_mem
bers/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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Eastern Europe
and the Baltic States

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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

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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

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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
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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

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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

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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 Africas regional


organizations

East African Community (EAC)

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African Union Countries


and Other Market Groups Fundamental 10
Market Metrics
Exhibit 10.6

Back
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African Union Countries


and Other Market Groups Fundamental 10
Market Metrics (continued)
Exhibit 10.6

Back
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Middle East

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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
Strategic Implications
Opportunities
Market Barriers

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Strategic Implications

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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

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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

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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

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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
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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
Exhibit 10.8

Back
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10

Consumption Patterns in the 10


Eight most populous countries
Exhibit 10.9

Back
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Marketing Mix Implications

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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)
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)

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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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