Three Advantages and Three Disadvantages of being a Trading Bloc Member - Research Paper Example

1 2 Three Advantages and Three Disadvantages of being a Trading Bloc Member Advantages Preferential treatment is given in regards to tariffs and import licenses to Trade Bloc members. 2. Economic development is stimulated through preferential treatment for goods and produced within the customs union and customers benefit from lower tariff barriers among participating countries. 3. The economic security that domestic producers experience results in a reduction of internal and external barriers. Disadvantages 1. Economically stronger members may stifle the growth and survival of weaker members. 2. Jobs are lost as companies seek to make the best of the open market by moving offshore or to a more financially viable location. 3. There is no set prices for goods and larger corporations may dominate the market by setting product prices. Before the implementation of NAFTA (North American Free Trade Agreement), businesses such as Quaker Fabric, had difficulties accessing the Mexican market. This was due to the high tariffs and import licenses imposed an trading. The CEO of Quaker Fabrics gives this account, as was recorded by 3 Cateora and Graham. "NAFTA has reduced those obstacles and our sales to Mexico have grown sharply. Quakers exports to our Mexican partners now account for 8 percent to 10 percent of our business, worth $25 to $30 million a year."(281). The authors further went on to explain that the possibility existed that the company would have had to move their business to Mexico or another lower-wage country. With the advantages gained through NAFTA, Quaker Fabrics products can now be resold to customers at a lower cost than it would have been had there been tariffs and licenses fees to honor. They are now able to freely access the Mexican Market and present a much more favorable deal to their partners in that country. It is now cheaper for both partners to conduct business. Quaker would also receive Preferential treatment as opposed to an outsider. Quaker now have an advantage over producers from Asia who export fabric to the United States but do not use US fabrics. (281) This results in an even bigger market for the company but serves as an disadvantage for the Asian producers who may now have a bigger challenge on their hands. They may now have to cut staff and production as there is not enough market to support them as before. In this case Quakers is now able to market their business to other businesses as being cheaper, better quality by customer preference which makes its fabrics more marketable. This may lead to business expansion and the ability to employ more persons for all the partners involved. 4 Business to Business Competition Greed is essential for competition and survival purposes within the Business to Business marketplace. Business to Business will from hereon be referred to as B2B. Survival of the fittest is a crucial principle within this arrangement. If an organization is to emerge as the fittest by creating and maintaining a competitive edge there are several factors that come into play. The first rule of the game is knowing your competitors and understanding the marketplace of which you are a part. Organizations have to employ strategic management tactics to arrive at the best analysis of the marketplace and use this to charter the way forward. Jain cites that, "A strategic plan specifies the sequence and timing of steps that will alter competitive relationships." (10). An organisation may have a brilliant strategy in its plans but the untimely implementation of this strategy will render it useless. In strategic planning, companies need to identify and clearly state their goals and "develop rational plans to implement them." (11). The core of strategic planning is based on the relationship of an organization to its environs. It is important that viable plans be put made based on existing and projected environmental changes. To cover all related areas of strategic planning and to execute a successful implementation of these plans, it is best that the organizations observe the following. ".... shape the company into logical business units that can identify markets, customers, competitors, and the external treats to their business." 5 ".... demonstrate a willingness at the corporate level to compensate line managers on long term achievements, not just the yearly bottom line, to fund research programs that could give the unit a long-term competitive edge...." ".... develop at the corporate level the capacity to evaluate and balance competing request from business units for corporate funds, based on the degree of risk and reward." (11). Overall in order to maintain a competitive edge organizations have to be prepared to plan wisely and take risk when necessary. It is important that all units of the company remain competitive so as to not form a weak link within the organization. This allows market segmentation to be a natural focus of the company leaving no stones unturned where product and service viability is concerned. This also allows the company to remain current by ensuring that the customers needs are well defined and and satisfied. Proper research and development finance, and marketing are key factors within the success of an organization. Derived demand and the supply chain and how they are stimulated by B2B "Derived demand refers to movements that are the direct outcome of economic activities without which they would not take place." (Rodrique 1998-2008). The supply chain runs co relatively between the consumer (end user) and the manufacturer and service providers. Derived demand occurs as a result of the activities which take place between of these stakeholders in the marketplace. Derived demands may 6 be direct or indirect. The manufacture and replacement of goods on a shelf following a sale is an example of indirect demand Derived demand. When product X is bought by a customer a need for replacement in the store is created. This need will also trigger more manufacturing by the supplier. Each of these needs came about as a direct result of each activity. The sale of an item in a store is dependent on the purchase by the customer. This in turn affects the store's need to restock that item and the rate at which the manufacturer will produce these items is dependent on the customer demand. On the other hand the demand for transportation for the employees to go to work is a direct demand derived from the business being in one place and the workers living in another area. B2B marketers stimulates derived demands by conducting their market researches and implementing plans to meet these needs. The activities which result from the implementation of these plans results in the creation of the supply chain. In the example given above the B2B transaction between the supplier and the store have generated the demand for transportation and storage. An increase in business would mean an increased demand for labor force, transportation and storage. Business to Business segmentation and a look at macro and micro segmentation The marketplace of consist of customers with varied needs. In order to effectively identify each customer's need and satisfy them accordingly, businesses must employ the strategy of segmentation. Market segmentation is simply dividing the marketplace into groups based on certain variables. 7 The marketplace may be divided based on several factors. Here the factors will be mentioned based on the customer market (Business to Customer B2C) and the industrial market (B2B). And are based on Jain's Exhibit 5-6 (122). Customer Markets Industrial Markets 1. Demographic (age, income, sex) 1. End use segments (identified by SIC code) 2. Socioeconomic factors (social class, stage in 2. Product segments (based on family life cycle) technological differences or production economics) 3. Geographic factors 3. Geographic segments (defined by boundaries between countries or by regional differences within them) 4. Psychological factors 4. Common buying factor segments (cut (lifestyle, personality traits) across product/market and geographic segments) 5. Consumption Patterns 5. Customer size segments (heavy, moderate and light users) 8 6. Perpetual factors (benefit segmentation, perpetual mapping) 7. Brand loyalty patterns Jain makes mention of an American food processor who made a successful break in the French Market by identifying that "modern" Frenchwomen liked processed foods but the "traditional" French Housewives saw them as a treat. This is an example of a socioeconomic factor being used to segment the customer market. "Segmentation aims at increasing the scope of business by closely aligning a product or brand with an identifiable customer group." (121). In a document entitled Macro Marketing, What do we do, macro marketing was cited as being "the art of using every possible applicable, appropriate tactic available to simultaneously communicate to the target audience the benefits of buying your product or service." Micro marketing on the other hand focuses on information retrieval and service delivery. In this form of marketing a data base with customer preferences and purchase behavior is compiled. This data base is used to create a specific package "for individual customers or a group of customers." (123). While the macro marketing approach targets the masses, micro marketing targets individuals and specific groups. 9 Added Value in Business to Business Marketing The supply chain is the distribution channel that delivers valued service as the product is processed and moved along a path to the final buyer. Added value refers to that element of value which various players in the supply chain may add to the service or product. B2B partners are concerned with their ability to add value to their products . Braham highlights this fact stating that "Current and potential participants in the supply chain compete to uncover a new value added service or a better way to manage the current supply chain activities. Obviously any activity that reduces cost along the channel will be of benefit to the final customers." (160). Added value serves to improve the efficiency of the supply chain. As a result of this process the customer may benefit from lower prices and a wider selection of products. Value may be added to a product as it passes through warehouses, sorting, packaging and transportation. Oliva related that the economic challenges of the early 2000s caused people to refer to B2B as "(back to basics)" and B2C as " (back to cost)." (2008). There are distinct differences between the concept of added value in the two markets. Within the market B2B transactions are more centered on fulfilling commitments to key accounts. The value of the products delivered from one business to the other may differ in that supplies are given in larger quantities. Within the B2B market your customer might just be your competitor. The value of the products and 10 services are determined by the businesses economic use. Members of the value chain form deeper partnerships as transactions take place among and within the these chains. Sales between businesses are more focused on "key account managements and multiple purchasing influencers." On the other hand transactions take place between the dealer and the the costumer (end user) and the value of the product is determined by the customers judgment. The main focus here is on brand management and the transactions are usually much smaller than that which takes place between businesses. In B2C marketing the transaction process takes a much shorter time than in B2B transactions. Marketing Campaign and the Tendering process Businesses who bid for a tendered contract are often major competitors. There are key points to bear in mind when entering such a bid. In order to gain a competitive edge it is best that an organization launch a get-to-know-me marketing campaign where they can sell the products or services that they have to offer to the business interest to which they are bidding. In a bidding process it is key that you identify and influence the influencers. The challenge will be to prove that of all your competitors your business is the most suitable one to be awarded the contract. A well planned and executed campaign will hold their attention and no chances should be missed to inform and impress. A competition is about beating up your opponent. A fighter who enters the ring without being prepared to fight is already beaten. The company to whom the tender is done will more than likely be very selective. An organization should 11 not allow the basic information which is provided as a necessary part of the application process to form the sole material that are used to measure them for the job. There may be other organization that are well known who are also bidding for the contract. If your company in not known you may be at a disadvantage. Conducting a marketing campaign and getting your name out there is a good way to establish a platform on which to stand and bid rather than trying to establish a platform from basic required information. Companies who invite others to bid for the contract to provide a service seek to obtain value for money. It is key that bidders prove they are the most suitable for the job. Pricing in the B2B and B2C marketplace There are four pricing factors which a pricer would have to consider to arrive at a price. These are: "pricing objectives, cost, competition and demand." (Jain 433). Pricing objectives usually reflects an organizations projection for the percentage of market share they hope to realize. These objectives can be "profit oriented" or "volume oriented." Profit oriented objectives the more popular of the two in large corporations. This pricing objective is used to outline the desired "net profit percentage" or a "target return on investment." It is also used to outline the desired sales growth rate and so is more suited for the B2B pricing than for B2C pricing. Cost have various components. These include : "fixed cost, variable cost, out of pocket cost , incremental cost, opportunity cost , controllable cost and replacement costs." (435). A pricer is more concerned with fixed and variable cost. During the process of evaluating the impact of. In an industry were the competitors are many and the competition is high there will not be much freedom for individual firms to set their own prices. If only a few competitors are in the industry and the products are of the same nature e.g cement, oil the room for setting individual prices is usually left up to the discretion of the industry leader. Competition is defined by the "number of firms in the industry , relative size of the members of the industry, product differentiation, and ease of entry." (436). Where only one firm occupies the industry, there is no competitive activity. The pricing factors are more rigid in the B2B market and may have an overall effect on the final price that the end user pays for the product. Flexible-pricing strategy where the same product may be sold for different prices is more common among the in the industrial sector than it is in the consumer market. These pricing factors guide a pricer as to how to set prices based on the marketplace. These factors differ from marketplace to market place and this influences the difference in th pricing of the same product in different regions and countries. 13 Works Cited Canzer, Brahm. E-Business: Strategic Thinking and Practice. Boston: Mifflin,2003. Cateora, Phillip, and John Graham. International Marketing. Boston: McGraw-Hill, 2005. Jain, Subhash. Marketing Planning and Strategy. Cincinnati: South-Western, 1993. Macro Marketing, What do we do. 21 April 2008. Oliva, Ralph. 2008. Business to Business Marketing Overview. Marketingpower.com. 20 April. 2008. Rodrigue, Dr. Jean-Paul. 1998-2008. Department of Economics and Geography. Hofstra University. 20 April. 2008. Read More