A1 1. regional economic integration.

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

3. Attract direct investment from outside the bloc. 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. 4. Acquire stronger defensive and political posture. One goal of regional integration is to strengthen member countries relative to other nations and world regions. A5 1. Economic similarity. The more similar the economies of the member countries, the more likely the economic bloc will succeed. 2. Political similarity. Similarity in political systems enhances prospects for a successful bloc. 3. Similarity of culture and language. Cultural and linguistic similarity among the countries in an economic bloc provides the basis for mutual understanding and cooperation. 4. Geographic proximity. Most economic blocs are formed by countries within the same geographic region. A6 1. Trade creation means trade is generated among the countries inside the economic bloc because, as barriers fall, each member country tends to begin trading more with members than with nonmembers. 2. Reduced global free trade. In more advanced stages, regional integration can give rise to two opposing tendencies. On the one hand, a country that reduces trade barriers is moving toward free trade. On the other hand, an economic bloc that imposes external trade barriers is moving away from worldwide free trade. 3. Loss of national identity. When nations join in an economic bloc, increased cross-border contact has a homogenizing effect; national cultural identity is diluted as the members become more similar to each other. 4. Sacrifice of autonomy. Later stages of regional integration require member countries to establish a central authority to manage the blocs affairs. 5. Transfer of power to advantaged firms. Regional integration can concentrate economic power in the hands of fewer, more advantaged firms. 6. Failure of small or weak firms. As trade and investment barriers decline, protections are eliminated that previously shielded smaller or weaker firms from foreign competition. 7. Corporate restructuring and job loss. Many firms must restructure to meet the competitive challenges posed in the new, enlarged marketplace of regional integration. A8 1. Internationalization by firms inside the economic bloc. Initially, regional integration pressures or encourages companies to internationalize into neighboring countries within the bloc. 2. Rationalization of operations. The creation of an economic bloc decreases the importance of national boundaries. 3. Mergers and acquisitions. The formation of economic blocs also leads to mergers and acquisitions (M&A), sometimes due to rationalization. 4. Regional products and marketing strategy. It is easier and much less costly to make and sell a few product models rather than dozens. 5. Internationalization by firms from outside the bloc. 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). B1 1. Advanced economies. Post-industrial countries characterized by high percapita income, highly competitive industries, and well-developed commercial infrastructure.

2. Developing economies Low-income countries characterized by limited industrialization and stagnant economies. 3. Emerging markets. Former developing economies that have achieved substantial industrialization, modernization, and rapid economic growth since the 1980s. B2 1. Emerging markets have become important target markets for a wide variety of products and services. 2. These markets are home to low-wage, high-quality labor for manufacturing and assembly operations. 3. Emerging markets have served as excellent platforms for sourcing.
B3

To overcome these challenges, in the early stages of market research, managers examine three important statistics to estimate market potential: 1. per-capita income, When evaluating the potential of individual markets, managers often start by examining aggregate country data, such as gross national income (GNI) or per-capita GDP, expressed in terms of a reference currency such as the U.S. dollar. 2. size of the middle class, In every country, the middle class represents the segment of people between wealthy and poor. 3. market potential indicators. B4 1. Political instability is associated with corruption and weak legal frameworks that discourage inward investment and the development of a reliable business environment. 2. Weak Intellectual Property Protection. Even when they exist, laws that safeguard intellectual property rights may not be enforced, or the judicial process may be painfully slow. 3. Bureaucracy, Red Tape, and Lack of Transparency. Burdensome administrative rules and excessive requirements for licenses, approvals, and paperwork all delay business activities. 4. Poor Physical Infrastructure. In advanced economies, high-quality roads, drainage systems, sewers, and electrical utilities are taken for granted. 5. Partner Availability and Qualifications. Foreign firms should seek alliances with well-qualified local companies in countries characterized by inadequate legal and political frameworks. 6. Dominance of Family Conglomerates. Many emerging market economies are dominated by family-owned rather than publicly owned businesses. B5 1. Customize Offerings to Unique Emerging Market Needs. Successful firms develop a deep understanding of the distinctive characteristics of buyers, local suppliers, and distribution channels in emerging markets. 2. Partner with Family Conglomerates. Family conglomerates are key players in their respective economies and have much capital to invest in new ventures. 3. Target Governments in Emerging Markets. In emerging markets and developing economies, government agencies and state-owned enterprises are an important customer group for three reasons. First, governments buy enormous quantities of products (such as computers, furniture, office supplies, motor vehicles) and services (such as architectural, legal, and consulting services). Second, state enterprises in areas like railways, airlines, banking, oil, chemicals, and steel buy goods and services from foreign companies. Third, the public sector influences the procurement activities of various private or semi-private corporations.

4. Skillfully Challenge Emerging Market Competitors. As the opening vignette shows, the new global challengers possess various strengths that make them formidable competitors, such as low-cost labor, skilled workforces, government support, and family conglomerates. B6 1. Foster Economic Development with Profitable Projects. Historically, few firms targeted poor countries because managers assumed there were few profitable opportunities. 2. Microfinance to Facilitate Entrepreneurship. Microfinance provides small-scale financial services, such as microcredit and microloans, that assist entrepreneurs to start businesses in poor countries.