Trading Blocs and Their Effects on the Globalization of the Marketing Strategies - Essay Example

Trading Blocs and Their Effects on the Globalization of the Marketing Strategies June 26th by Since emergence of globalization, the extent of international trade has greatly improved across nations. The economies in the contemporary era have realized that maximum social and economic utility can be achieved only with the essence of open door policies (Ikeda, 2002). A successful economy is the one that experiences growth through public and private participation (Ikeda, 2002). After implementation of trade liberalization policies, international organizations such as, International Monetary Fund and World Bank, have encouraged countries to actively participate in foreign trading (Portes and Rey, 2005). However, it should be noted that trading blocs across economies have also played gigantic roles in generating commercial cross-country trade (Pearce and Tavares, 2000). A trading bloc is a type of intergovernmental formal agreement that helps to lower the regional barriers to trade. A trading bloc in a nation that can exist in the form of a section of regional intergovernmental association and it promotes international trade between states. It is currently seen that the degree of competition across each industrial segment is high and in order to gain higher competency, marketing activities has become an indispensible business task for every organization. This article will precisely elaborate on the impact created by trading blocs on globalization of marketing strategies of the firms. It is highly rational to conduct an analysis on the concerned topic because corporate firms undertake internationally integrated marketing activities, after extending business internationalization process as per the resource based view of management (Pettinger, 2008). Trading blocs were formed after implementation of Free Trade Agreement (FTA) in each nation (Delener, 1999). In 1988, Canada had signed the FTA with United States. In 1994, the North American FTA included Mexico in the free trading group, along with the U.S. and Canada (USI, 2000). Over time, countries lying in specific political unions such as, ASEAN and APEC, started to adopt the free trading agreement, following enactment of the NAFTA. Few researchers claim that trading agreement between nations substantially depends on the level of coordination among participating nations (USI, 2000). Thus trading blocs primarily reduce barriers to international trade between nations. Furthermore foreign direct investments, economies of scale, increased market competition and enhanced market efficiency can be experienced in an economy, only with the help of trading blocs (Pearce and Tavares, 2000). South Asian Association for Regional Cooperation, Central American Common Market, European Free Trade Association and Commonwealth of Independent States are the names of some popular trading blocs in the world (Pettinger, 2008). Based on the level of economic integration between nations, the above table presents the most prominent types of trading blocs across the world. A trading bloc is formed when countries within the bloc agrees to provide preferential treatment to each other (the members), which was greater than that of non-member countries of the bloc. Researchers state that after realignment process of a trading bloc, special impacts are instantaneously created as well as gradually developed among all member countries (USI, 2000). This implies that trading bloc formation generates both static and dynamic effects to member countries. Figure 1: Static Effect (Source: USI, 2000) The above graph presents an example of a static effect created by a trading bloc. The study states that the price of a particular product in a country, for instance Chile, is Pc, while that of the same product in Mexico is Pm. Since, Pm < Pc, it can be stated that Chile has competitive advantage in producing the particular product over Mexico. Now, it was assumed that the U.S. had shared a trading bloc with Mexico, then considering the cost of tax t, the procurement price of the concerned product in the U.S. would be Pm+t. Then again, if the U.S. revised the existing trading bloc and included Chile within it, then former would import the product from Chile instead of Mexico. This is because, Pm+t>Pc+t (USI, 2000). This literature analysis proved that by changing a trading bloc, a country can experience static instantaneous changes in prices of imports or exports. Companies of a country are substantially benefited when it joins a particular trading bloc. The firms will enjoy dynamic effects such as, economies of scale, increasing market demand share and innovation, with the essence of the FTA practiced in activities of the trading bloc (Economics Online, 2014). Researchers have suggested that trading blocs are primarily of eight categories. These categories are economic and monetary unions, customs and monetary unions, simple monetary unions, simple economic unions, market unions, simple customs unions and bilateral and multilateral free trading unions (Hay, 2005). Researchers believe that a trading bloc can be precisely defined in terms of four major aspects. Trade blocs promote trading activities between its member states (USI, 2000). They aim to support trade liberalization among its member countries, associated with the objectives of free trade, common market and customs union establishments. The blocs try to build negotiating relationships with other multilateral forums and trade blocs. Finally, in certain circumstances, it also organizes the economic policies of member countries. This helps to lower the extent of intra-bloc economic transaction disruption (Malhotra, 2004). Some popular trading blocs are the European Free Trade Association, North American Free Trade Agreement, Andean Community of Nations, MERCOSUR, Central American Free Trade Market, South African Development Community and Economic Community of West African (University Seigen, 2010). Researchers believe that since long trading blocs helps in promoting the level of international trade between countries, it has generated significant impacts in the business environment of every nation. It is stated that proliferation of FTA and emergence of trading blocs have allowed business firms to access foreign markets. Companies are exposed to increased competitiveness and economic security owing to activities of the trading blocs. Many market researchers have mentioned that after saturation of domestic market demand, companies have achieved adequate growth opportunities only through free trade promoted by the trading blocs (Pearce and Tavares, 2000). Even so, it is also believed that along with great opportunities, trading blocs have generated certain new challenges for multinational corporations operating in the member states. Increased market competition, higher uncertainties, currency fluctuations, exchange rate volatilities and variability in buyers demand pattern are some of these challenges. Experts opine that only efficient marketing strategies can effectively lower the business challenges of a firm and assist its market competency (Magee, 2008). Hence, it was found that increased cross-country trading activities promoted by the trading blocs had also significantly affected the marketing strategies of globalized firms. Trading bloc formation and increased global trade among the countries have helped to globalize the marketing activities of firms. Researchers state that strategic alliances between firms of different nations, sharing free trading relationships, carve the path for coordinated marketing strategies (Johal and Ulph, 2002). Under this strategy, two or more firms conduct marketing activities collectively in ways that enhance their mutual profits, sales and market demand share. It is often observed that co-marketing activities are more commonly practiced between companies, which require making large investments in research and development (Kim and Prescott, 2005). Few scholars believe that the state of technology is rapidly progressing worldwide with passage of time (Homayounnejad and Elizabeths, n.d). Increased marketing cooperation among the business competitors within a particular industry enables each firm to enjoy benefits of new technological innovations in the business environment. Furthermore, scholars have also points out that contemporary business firms adopt differentiated marketing strategies, as opposed to the conventional standardized ones. This is because external business environment of each market is dissimilar in nature (Hay, 2005). The marketing strategies of firms are also formulated according to the respective industrial structure. It is found that globalized marketing strategies can be categorized in terms of few major features. These are integrated globalized marketing strategies, globalized segmented strategy, globalized marketing mix strategy, global commodity strategy, global strategy of branding and composite marketing strategies. Therefore, from the literature, trading blocs can be considered to have revolutionized the traditional norms of marketing in the business world (Harzing and Noorderhaven, 2006). In the current era, economic growth and increase in per person income level across developed as well as developing nations are facilitated with the help of international trade. Nonetheless, it should be noted that increased trade between countries experiencing distinguished political, social, economic and technological status has been achieved largely with inclusion of trading blocs (Harris and Li, 2005). Even so, it is rational to analyze that the impact of trading blocs is not limited to changes occurring in external business environment of a country. The internal aspects of commercial firms have considerably changed with activities of the trading blocs (Gupta and Govindarajan, 2000). Globalized marketing strategies are substantially different from the conventional trade promotional strategies of the business firms. These marketing strategies allow firms to successfully conduct business across diverse and dynamic economic environments. Firms nowadays are subjected to larger scopes of innovation and market demand growth rates by incorporation of globalized marketing strategies (Greig, 2002). The trading blocs enable companies conduct business across numerous nations by applying integrated global strategies of marketing (Akkya, 2010). These firms follow standardized pricing, product, promotional, communicational, segmenting, targeting and positional strategies because they cater to globalized consumers in markets (Girma, 2005). Whereas traditional, experienced multinational companies such as, Debenhams and Tesco apply multi-domestic globalized marketing strategies (Akkya, 2010). These firms introduce different segmenting, positioning and targeting strategies for the standardized product lines across different markets. Segmented strategies are implemented by firms that frame different marketing mix strategies for the same niche market across all countries (Frankel, Stein and Wei, 1995). Global marketing mix element strategies are implemented by firms that prefer to adopt completely customized product, pricing, place, promotional and communicational strategies in business as per suitability. Trading blocs allow all companies to adopt globalized branding marketing strategies. By implementing this strategy, the firms use a common standardized brand name and logo across all operational markets. Using a common brand name and logo becomes a type of marketing strategy for firms because brand recognition and popularity of a firm can effectively attract a wider base of loyal customers in both domestic and foreign markets (Dunning,1994). Furthermore, by implementing globalized branding strategies, companies use differentiated brand names for conducting trade in separate markets. However, even though global and corporate level strategies of firms can be more than one; in reality, several companies incorporate one composite global marketing strategy (Economics Online, 2014). Business firms producing products with very close substitutes implement competitive marketing strategies. For instance, companies like, Debenhams and Tesco compete across several marketplaces with the help of this strategy, where product, pricing, place, promotional and communicational decisions of firms are introduced on grounds of strategic behaviour (Driffield and Taylor, 2000). Such enhanced business internationalization and diversified globalized marketing strategies are at present extensively practiced by multinational firms, mainly owing to trade promotional activities of the trading blocs. The dynamic and static effects of trading blocs have stimulated business and economic growth across nations by implementing new globalized marketing strategies (Delener, 1999). From the above context of the essay, it would be correct to conclude that trading blocs have substantially helped commercial firms to grow, both in terms of scale and scope of operations. Neighbouring countries across the world form trade blocs as they believe in the intrinsic worth of free trade (Cantwell and Iammarino, 2000). Trading blocs helps to lower the political, social, economical and technological barriers of cross-country trade. As a result, activities of these institutions help firms to experience higher market demand, thereby facilitating economies of scale in manufacturing process (Buckley and Ghauri, 2004). In addition, free trading can lower the legal costs of firms across different economies and gradually increase business revenue and profit. Nevertheless, it should be noted that so far, successful multinational companies could not attain international trading proficiency without new globalized marketing strategies. Even so, such new effective cross-country sales strategies could not be adequately undertaken by the firms without emergence of the trading blocs. 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