Trading blocs and their influence on the globalisation of the marketing strategies - Essay Example

Trading blocs and their influence on the globalisation of the marketing strategies employed by multinationals based in the UK Economic Union or custom union formed by group of countries can be described as trade blocs. The trading bloc of European Union can be regarded as one of the most powerful with a combined GDP as large as that of United States of America. The rationale behind the trading bloc formed by the European Union (EU) was to promote economic union between its member countries by tighter integration of monetary and fiscal policies, tax rates and freer movement of labour between countries (Malhotra, Agarwal and Baalbaki, 1998). The chief idea behind forming trading blocs is to uphold globalization without impediments. This is because trading blocs helps in negotiations between countries, which is the backbone of globalization. There is a close integration between influence of trade blocs and evolution of multinational enterprises. Freer trade between nations is one of the most powerful forces that shape development of multinationals (Paul, 2003). A closer look towards the world economy reveals that MNCs have accepted regional trade blocs as a prerequisite for accomplishing full-fledged globalisation. This is because trading blocs provide MNCs with strategies, which assist them to achieve closer corporate integration. The purpose of this paper is to analyze the impact of regional trading blocs of U.K. on globalization and global marketing by multinationals of the U.K. (McDonald, et al., 2009). The global stage is dominated by the presence of a large number of trading blocs for a number of countries and regions. There are about 30 trading blocs globally across various continents, working either at national or regional levels. In Europe alone, there are three trading blocs, namely European Union, European Free Trade Association and Eurasian Economic Community. However, trade bloc of the European Union is the only one to have the United Kingdom as its member (Floyd, 2001). The world trade is being increasingly dominated by the concept of trade blocs in recent times. This can be clearly exemplified by taking the case of the European Union. Initially, this had only six countries as its members during inception in 1940s, but had 28 countries by end of the first decade of 21st century. NAFTA is another such trade bloc, which promotes trade relations between the USA and Canada (Oh and Suh, 2003). All major trade blocs that exist in the contemporary world, like, ASEAN, NAFTA and European Union, have a common objective. The countries that are outside the trading blocs do not enjoy benefits of lower tariff and custom duties on imported goods (Economics Online, 2014). Trade blocs have a very important role to play in economic development of a country, primarily because economic progress of a country can be directly related to amount of trade conducted by that country. This is because trade brings new opportunities to a country by opening up its markets, bringing in improved technological innovation and raising the level of production (Tatoglu and Glaister, 1996). Formation of the European Union had a major impact on the U.K. as it had a pivotal part in affairs relating to trading of the country. The major benefit that accrued to the U.K. from the trading bloc is that the country was able to trade freely with other 27 members of the European Union akin to a single market. This enhances level of trading for the U.K. by improving scale of production and marketing (Wilkes, Samuels, and Greenfield, 1996). The most important agenda behind formation of the European Union was to remove trade barriers such as, custom duties and unification of taxes, to promote free trade. The trading blocs aimed to remove any type of trade distortions from the system like, that of subsidiaries (Glanz, 2007). It also wanted to uphold business prospects of the European companies by enhancing opportunities for the labour force (Lucio, 2010). The European Union trading bloc not only promotes trade between nations, but also movement of labours between them. Globalization also plays a major role in facilitating economies of scale for organizations. The presence of trading blocs helps to eliminate barriers between countries and allow organizations to reduce their production costs, thereby supporting the company to grow in size. Enjoying economies of scale enables a company to reduce its costs of operation and undertake mass production, which raises level of output for the economy (Lucio, 2010). It has been established that level of FDI is the crucial factor, which determines the link between process of globalization and trading blocs. According to Dunning’s theory, market-seeking attitude of the multinationals plays an integral part in choosing the market that they want to enter (Dunning, 1994). Recent research work conducted in this field has shown that multinationals and trading blocs interact at multiple levels other than the basic premise proposed by Dunning. Firstly, quality of investment plays a very important role for MNCs to decide the host country, where subsidiary is to be established strategically. If quality of investment is poor, then MNCs do not choose the host country to establish subsidiary and consequently level of production falls therein, affecting the country adversely (Archick, 2014). Secondly, if trading bloc of the country promotes free trade agreement, then MNCs act proactively as they are primarily idiosyncratic in nature. Free trade agreements help in generating different market needs among member countries, which in turn improves business needs of individuals. Thirdly, if the MNCs are present across multiple member countries, then trade blocs have act in a pivotal manner in encouraging regional competition and in turn affect performance of companies (Mittelman, 1996). One of the major decisions taken by the European Union that has impacted business of multinationals in the U.K. is that of adoption of new tax policies for regulation of profits. The corporate taxes in the United Kingdom have fallen rapidly like, other members of the EU in order to help multinational companies improve their prospects of profit. Though the trade blocs provide a basic framework for the countries, yet members have some discretion to implement the laws. In order to promote freer trade and globalization, the government of U.K. has replaced the complex system of credit with a simpler form of taxation for business houses so as to encourage the level of their production. It was observed that the initial system of national corporate tax used in the country had created multiple problems for cross-border transactions of both U.K. based multinationals and foreign companies working with U.K. (Hyman, 1999). The multinational companies in the U.K. have free access within the free trade region, which helps companies to utilize sources of competitive advantage. Multinational companies directly benefits from product standardization and homogenous characteristics of consumers in the market. These factors jointly contribute to the economies of scale that can be enjoyed by the firms. The trading blocs remove barriers of trade and help the MNCs to reap these benefits (Kaplinsky, 2013). It has been noted that globalization plays an important role in determining the nature of operation of multinationals. They can either work as subsidiaries, advanced replicas or regional operators in member countries of the trade bloc union. In case of free trade areas, MNCs either operate as regional operators or advanced replicas. The U.K. has a relatively smaller economy compared to other countries of European Union such as, Germany and France. The increased globalization of world economy has increased reliance of the U.K. on trade. The multinationals of U.K. have been gained from a number of free trade practices followed by the country. In order to enhance prospects of business for large companies and encourage their level of production tariffs, import duties have been removed for majority of the goods. In order to boost the service sector of the country, market access to the same has been enhanced. Recently, the country has adopted the policy of duty free trade in e-commerce and also wishes to encourage electronic commerce into the multilateral system of trading (Lawn and Grek, 2012). Though member countries of the European Union have pledged to promote free trade, yet restrictions imposed by some of the member countries often create problems for companies based in the U.K. In order to solve the crisis the government had taken number of measures for finding solution (Anon, 2010). Firstly, when any member country puts up a barrier affecting the business of an industry, negotiations are taken up either with that country or the European Union. Secondly, the U.K. has taken proactive efforts to participate in international trade agreements like, Transatlantic Trade and Investment Partnership, in order to support trade between the U.K. and the U.S.A. This is likely to impact all British multinational companies doing business in the U.S.A. Similarly, free trade agreement that has been signed between South Korea and the U.K. is expected to improve the working of British multinationals (Anon, 2010). Finally, drawing investments through FDI is one of the most important agenda as it can be related with positive growth of the country. The government is creating an environment suitable for foreign investors to allow them to invest in the economy. The efforts of the government and liberalization of trade have already shown results as the U.K. has emerged as top destination for foreign direct investments. FDI is one of the primary reasons, leading to growth of a large number of multinationals in the U.K. Reduction of trade barriers can also be taken as one of the major factors that have contributed towards attracting FDI (Bhagwati, Krishna and Panagariya, 1999). Regional tax variations adopted by the country has been successful in bringing additional investments in certain regions of the U.K. Particularly, London has been promoted as one of the most important destinations for investors (Marquardt, 2013). In order to encourage higher investment in the country, tax policies are seen to be altered for attracting foreigner investments. Currently, overseas subsidiaries of companies working in the U.K. do not have to pay corporation tax. This action has clearly benefitted the companies. The dividends received by parent companies based in the U.K. from their subsidiaries in other countries are subjected to flat rate of tax without any complexity (Inoguchi and Marsh, 2007). Multinational organizations in the U.K. and entire Europe follow an extensive policy of lobbying to influence the decisions adopted by trade bloc of the EU (Mariotz and Malhotra, 2004). The presence of wide information asymmetry in the market compels MNCs to sought political favour so as to gain advantage. This is done in order to manipulate the government so that they can conduct their business freely. Nonetheless, smaller companies do not enjoy this benefit, which in turn increases their cost of operation. Large multinationals of the country work together with the government for creating policies in their favour. Association between these two entities are particularly important because it creates winners and losers owing to a direct impact on organizational and marketing costs. Therefore, it can be deduced that maintaining a good relationship with key members of the trade blocs also has a direct impact on the business. Trade blocs have become vital in the contemporary world with rising volumes of trade between nations. The entire global economy is driven by a large number of trade blocs, which coordinate free trade between them by removing barriers to trade in form of tariffs and export duties. In case of the U.K., the trade bloc is observed to be regulated by the European Union, which promotes free trade among all its member countries. The European Union is believed to support both the movement of goods and services and labour across borders. This paper had primarily focused on the multinationals of U.K. and impact of trade bloc on them. It can be concluded that policies undertaken by the U.K. government in association with the trade bloc aims at promoting business and operations of multinationals in a multiple ways. Primarily, the efforts comprise adjusting rates of corporate taxes and ways to attract FDI. 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