Chapter 10

Europe, Africa, and the Middle East

International Marketing15th edition

Philip R. Cateora, Mary C. Gilly, and John L. Graham Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

10Introduction

• 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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10Overview

• 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?• 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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10La Raison d’Etre

• 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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10Economic Factors

• 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

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10Political Factors

• 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• 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)• 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

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Patterns of Multinational Cooperation (2 of

3)• 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)• 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 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 competition12Roy Philip

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Global Markets and Multinational Market

Groups• Europe• Eastern Europe and the Baltic States• Common wealth of Independent States (CI

S)• Africa• Middle East

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European Market Regions Fundamental Market

Metrics

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Exhibit 10.1

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The European Economic Area

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Exhibit 10.2

10European Union

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From the European Coal and Steel Community to Monetary

Union

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Exhibit 10.3

10European Integration

• 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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10European Union (1 of 2)

• 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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10European Union (2 of 2)

• 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)• 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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10The Euro

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Exhibit 10.4

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Expansion of the European Union

• http://europa.eu/abc/european_countries/eu_members/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

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10Eastern Europe

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Eastern Europe and the Baltic States

• 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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10Eastern Europe

• 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 state-owned 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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10The Baltic States

• 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 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 of Independent States

(CIS)

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Exhibit 10.5

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10Africa

• 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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10Regional Groups - Africa

• 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

Fundamental Market Metrics

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Exhibit 10.6

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African Union Countries and Other Market Groups

Fundamental Market Metrics (continued)

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Exhibit 10.6

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10Middle East

• 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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10Strategic Implications

• 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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10Opportunities

• 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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10Market Barriers

• 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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10Market Metrics

• 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 countriesNext 39Roy Philip

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Standard of Living in the Eight most populous

countries

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Exhibit 10.7

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Infrastructures of the Eight most populous countries

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Exhibit 10.8

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Consumption Patterns in the Eight most populous

countries

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Exhibit 10.9

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Marketing Mix Implications

• 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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10Summary (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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10Summary (2 of 2)

• 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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