Regional Economic Groupings

Part 7:Part 7:Regional Regional Economic Economic

IntegrationIntegration

Liaoning University

Dr Yuanyuan Xing

International Business

Learning ObjectivesLearning Objectives

• Evaluate regional economic integration

• Discuss regional integration in Europe

• Evaluate regional integration in the Americas

• Examine regional integration in Asia

• Review regional integration in the Middle East

and Africa

Regional Shares of Regional Shares of World Merchandise World Merchandise

Exports (%)Exports (%)

WTO, International Trade Statistics 2000; also Annual Report 2000.

01020304050

19801999

RegionalRegionalEconomicEconomic


RegionalRegionalEconomicEconomic


Free Trade AreaFree Trade Area

Customs UnionCustoms Union

Common MarketCommon Market

Economic UnionEconomic Union

Political UnionPolitical Union

Types of Regional Types of Regional Economic IntegrationEconomic Integration

Free Trade Area

Customs Union

Common Market

Econ. Union

Remove trade restrictions among members

? NAFTA

?

? ?

Common external trade policy towards non-members

? ANCOM

?

?

Free movement of labor & capital among members

? CARICOM

?

Harmonize policies under central control

? EU

Benefits of Regional Benefits of Regional Economic IntegrationEconomic Integration

• Trade Creation

• Greater Consensus

• Political Cooperation

• Global presence of local businesses

• Foreign competition

Drawbacks of Regional Drawbacks of Regional Economic IntegrationEconomic Integration

• Trade Diversion

• Shifts in Employment

• Less National Sovereignty

• Backlash of Globalisation

The Global Triad: The Global Triad: Source & Direction of Merchandise Source & Direction of Merchandise

ExportsExports

NAFTA - 21% Asia - 19%(of which Japan - 7%)

Non-Triad countries - 13% of world exports. Thickness of arrows corresponds to volume of exports.

W. Europe - 47%

The Triad’s Share (% of The Triad’s Share (% of World Merchandise World Merchandise

Exports)Exports)

70.486.5

0

50

100

1980 1998

SingleSingleEuropean ActEuropean Act

SingleSingleEuropean ActEuropean Act

EuropeanEuropeanCoal and SteelCoal and Steel

CommunityCommunity

EuropeanEuropeanCoal and SteelCoal and Steel

CommunityCommunity

MaastrichtMaastrichtTreatyTreaty

Integration in EuropeIntegration in EuropeIntegration in EuropeIntegration in Europe

EuropeanEuropeanEconomicEconomic

CommunityCommunity

Structure of the European Union

EuropeanEuropeanParliamentParliament

EuropeanEuropeanCommissionCommission

CouncilCouncilof Ministersof Ministers

EuropeanEuropeanCouncilCouncil

CourtCourtof Justiceof Justice

North American Free North American Free Trade Agreement (NAFTA)Trade Agreement (NAFTA)

United States - CanadaUnited States - CanadaFree Trade AgreementFree Trade Agreement

Integration in Integration in North AmericaNorth America

Integration inLatin America

Latin AmericanFree Trade

Association (LAFTA)

SouthernCommon Market

(MERCOSUR)

Latin AmericanIntegration

Association (ALADI)

The AndeanCommunity Pact

Central AmericaCentral Americaand the Caribbeanand the Caribbean

CaribbeanCaribbean

CommunityCommunity

and the Common and the Common

Market (CARICOM)Market (CARICOM)

CentralCentral

AmericanAmerican

Common MarketCommon Market

(CACM)(CACM)

Free TradeFree TradeArea of theArea of the

Americas (FTAA)Americas (FTAA)

TransatlanticTransatlanticEconomicEconomic

Partnership (TEP) Partnership (TEP)

Proposed TradeProposed TradeAgreements Agreements

Integration in AsiaIntegration in Asia

AssociationAssociationof Southeastof Southeast

Asian Nations Asian Nations (ASEAN)(ASEAN)

Asia PacificAsia PacificEconomicEconomic

Cooperation Cooperation (APEC) (APEC)

Integration in the Integration in the Middle East and Middle East and

AfricaAfrica

Gulf Gulf

CooperationCooperation

Council (GCC)Council (GCC)

EconomicEconomic

Community ofCommunity of

West African West African

States (ECOWAS)States (ECOWAS)

Part 11:Part 11:Planning and Planning and Organizing Organizing

International International OperationsOperations

Liaoning University

Dr Yuanyuan Xing


Learning ObjectivesLearning Objectives

• Explain the stages of identification and analysis that precede strategy selection

• Identify organizational strategies of international companies

• Learn how production affects strategy

• Learn how marketing affects strategy

• Discuss the structures of international organizations

Strategy Formulation Strategy Formulation ProcessProcess

Identify Core Competencies and Identify Core Competencies and Value-Creating ActivitiesValue-Creating Activities

Identify Company Mission and GoalsIdentify Company Mission and Goals

Formulate StrategiesFormulate Strategies

Export StrategyExport Strategy

• Entry mode depends on ownership advantages, location advantages, and internal advantages

• Companies will sometimes choose export strategy if their ownership levels are low

• Traditional theory states that the larger the company, the greater the chance of being an exporter

Import StrategyImport Strategy

• Three types of importers: 1) looking for a product to buy and sell 2) looking for a cheaper source overseas 3) using foreign source as part of the global

supply chain

• Two types of imports 1) Industrial and consumer goods 2) Intermediate goods that are part of a firm’s

supply chain

Define the Define the BusinessBusiness

Define Define MainMain

ObjectivesObjectives

Company Mission

and Goals

Company Mission

and Goals

Core Competencies andCore Competencies andValue-Creating ActivitiesValue-Creating Activities

BusinessBusinessEnvironmentsEnvironments

Primary Primary ActivitiesActivities

SupportSupportActivitiesActivities

Unique Unique Abilities Abilities

InternationalStrategies

InternationalStrategies

GlobalStrategies

GlobalStrategies

MultinationalStrategies

MultinationalStrategies

CombinationStabilityStability

Corporate-LevelStrategies

Corporate-LevelStrategies

RetrenchmentRetrenchmentGrowthGrowth

Business-Level StrategiesStrategic Advantage

Str

ate

gic

Ta

rge

t

DifferentiationDifferentiationDifferentiationDifferentiation Overall CostOverall CostLeadershipLeadership

Overall CostOverall CostLeadershipLeadership

FocusFocusFocusFocus

Industrywide

ParticularSegment Only

Uniqueness Perceivedby the Customer Low Cost Position

Support Support

• Research & Development

• Human Resources

• Procurement

• Accounting & Finance

PrimaryPrimary

• Manufacturing

• Marketing and Sales

• Customer Service

• Efficient Logistics

Department-Level Department-Level StrategiesStrategies

Production Considerations

Production Considerations

Capacity PlanningCapacity PlanningFacilities Location Facilities Location

PlanningPlanning

Facilities LayoutFacilities LayoutPlanningPlanningProcess PlanningProcess Planning

DecentralizationDecentralizationDecentralizationDecentralizationCentralizationCentralizationCentralizationCentralization

AdaptationAdaptationAdaptationAdaptationStandardizationStandardizationStandardizationStandardization

Marketing Marketing ConsiderationsConsiderations

Marketing Marketing ConsiderationsConsiderations

MeasureMeasureMarketMarket

PotentialPotential

EmergingEmergingMarketsMarkets

IndustrializedIndustrializedMarketsMarkets

Pricing FactorsPricing Factors

• Exchange rates

• Transportation costs

• Duties

• Channels

• Insurance

• Banking

Measure Site PotentialMeasure Site Potential

Quality of Local ResourcesQuality of Local Resources

Investment of Time and MoneyInvestment of Time and Money

Stability of Local InfrastructureStability of Local Infrastructure

Select theSelect theMarketMarketor Siteor Site

CompetitorCompetitorAnalysisAnalysis

FieldFieldTripsTrips

Difficulties of Conducting International Research

• Availability of data

• Comparability of data

• Cultural problems

Evaluating Investment Evaluating Investment ProposalsProposals

Estimating Future Cash FlowsEstimating Future Cash Flows

Present ValuePresent Value

Risk and ReturnRisk and Return

Return on InvestmentReturn on Investment

Types of Types of Organizational Organizational

StructureStructure

International Division Structure

HeadquartersHeadquarters

PlanesPlanesDivisionDivision

(domestic)(domestic)

TrainsTrainsDivisionDivision


InternationalInternationalDivisionDivision

AutomobilesAutomobilesDivisionDivision


PlanesPlanesDivisionDivision(France)(France)


(United States)(United States)

PlanesPlanesDivisionDivision(Brazil)(Brazil)

International Area Structure


AsiaAsiaDivisionDivision

AmericasAmericasDivisionDivision

Middle EastMiddle Eastand Africaand AfricaDivisionDivision

EuropeEuropeDivisionDivision

JapanJapan S. KoreaS. KoreaChinaChina

Global Product Structure





(Germany)(Germany)

TrainsTrainsDivisionDivision(Mexico)(Mexico)

TrainsTrainsDivisionDivision(India)(India)

PlanesPlanesDivisionDivision(global)(global)

AutomobilesAutomobilesDivisionDivision(global)(global)

TrainsTrainsDivisionDivision(global)(global)

Global Matrix Structure


AsiaAsiaDivisionDivision

AmericasAmericasDivisionDivision

EuropeEuropeDivisionDivision

PlanesPlanesDivisionDivision


AutomobilesAutomobilesDivisionDivision

Part 13: Part 13: Acquiring Acquiring Personnel Personnel ResourcesResources

Liaoning University

Dr Yuanyuan Xing


Traditional Human Traditional Human Resource Resource

ManagementManagement

StaffingStaffinga Companya Company

EnsuringEnsuringProductivityProductivity

International HumanInternational HumanResource ManagementResource ManagementInternational HumanInternational Human

Resource ManagementResource Management

Training and DevelopmentTraining and Development

Managing CompensationManaging Compensation

Accommodating ExpatriatesAccommodating Expatriates

EthnocentricEthnocentric PolycentricPolycentric

GeocentricGeocentric

International International StaffingStaffing

THREE APPROACHES TO STAFFING THREE APPROACHES TO STAFFING FOREIGN SUBSIDIARIESFOREIGN SUBSIDIARIES

• Expatriate staffing– An expatriate is home-country national, usually an

employee of the firm, who is assigned abroad to manage the enterprise’s foreign subsidiary(s)

• Host Country National– A resident of the country where the firm’s subsidiary is

located, or is to be located, employed to manage the local operation.

• Third Country– A resident of a country other than the home country

and the host country employed to manage the operation.

Recruiting and SelectingRecruiting and SelectingHuman ResourcesHuman Resources

Recruiting and SelectingRecruiting and SelectingHuman ResourcesHuman Resources

PlanningPlanning SelectingSelectingRecruitingRecruiting

DIMENSIONS OF THE DIMENSIONS OF THE INTERNATIONAL HRM FUNCTIONINTERNATIONAL HRM FUNCTION

• The broad function: procurement, allocation, and utilization.

• Country categories: the home country, or the host country, or where the subsidiary is located; and third countries, or other countries that may be a source of labor

• Types of employees: home-country employees, host-country employees, and third-country employees.

ADDITIONAL FUNCTIONS AND ADDITIONAL FUNCTIONS AND ACTIVITIESACTIVITIES

• Developing a Global Mindset throughout Organization

• International Taxation

• International Relocation and Orientation

• Providing International Administrative Services

• Foreign Government Relations

• Providing Foreign Language Training

Culture ShockCulture Shock

ReverseReverseCulture ShockCulture Shock

ExpatriateExpatriateFailureFailure

SpecialSpecialChallengesChallenges

for Managersfor Managers

Training and Training and DevelopmentDevelopment

EnvironmentalEnvironmentalBriefingsBriefings

CulturalCulturalAssimilationAssimilation

LanguageLanguageTrainingTraining

CulturalCulturalOrientationsOrientations

SensitivitySensitivityTrainingTraining

FieldFieldExperienceExperience

Employee Employee CompensationCompensation

ManagerialManagerialEmployeesEmployees

Non-ManagerialNon-ManagerialWorkersWorkers

THE IMPACT OF CULTURE ON THE IMPACT OF CULTURE ON BUSINESS PRACTICESBUSINESS PRACTICES

Time– “Time equals Money” versus Relationship– Issues with schedules:

• Individuals in some cultures possess an “it must be done by tomorrow” mentality, but people in other cultures possess a “when it gets done is when it is done”attitude.

– Time and Decision Making Process

THE IMPACT OF CULTURE ON THE IMPACT OF CULTURE ON BUSINESS PRACTICES: The Pace of BUSINESS PRACTICES: The Pace of

LifeLife

A sample of selected countries from a total of 31 studied

Country Overall pace Walking 60 feet Postal Service Public Clock

SwitzerlandIrelandGermanyJapanItalyUnited StatesSyriaEl SalvadorBrazilIndonesiaMexico

12345162728293031

31571062922312617

231412232816242631

111862282731283026

THE IMPACT OF CULTURE ON THE IMPACT OF CULTURE ON BUSINESS PRACTICES (continued)BUSINESS PRACTICES (continued)

• Thought Patterns– Some cultures’ thought patterns are circular. Circular cultures

believe that since individuals can see what has happened in the past, their past is ahead of them, and since they cannot see into the future, their future is behind them.

– Linear cultures view the past as being behind them and the future in front of them.

• Personal Space– People in the United States prefer a wide distance from those

with whom they are involved in face-to-face communication.

– People in Arab cultures prefer a very short distance between themselves and those with whom they are communicating.

THE IMPACT OF CULTURE ON THE IMPACT OF CULTURE ON BUSINESS PRACTICES (continued)BUSINESS PRACTICES (continued)

• Material Possessions– Individuals in some cultures, e.g., the U.S., equate

success with material wealth (items such as expensive clothes, automobiles, houses, large offices, expensive furnishing, and so forth).

– The Japanese take pride in relatively inexpensive but tasteful arrangements that are used to produce the proper emotional setting.

• Family and Friendship Roles• Competitiveness and Individuality• Social Behaviors

– Eating, Foods, Gift giving, Greeting

HIGH-CONTEXT VERSUS LOW-HIGH-CONTEXT VERSUS LOW-CONTEXT CULTURESCONTEXT CULTURES

• Advice to an executive from the U.S. (a low-context culture) seeking to do business in a high-context, South American Spanish-speaking country:– It is necessary to spend much more time with your business

partner.– You have to get to know your man and vice versa.– You must meet with him several times before you talk

business.– Take your price list and put it in your pocket…Down here price

is only one of the many thing taken into account before closing the deal.

– People like to do business with men who are somebody. In order to be somebody, it is well to have written a book, to have lectured at a university, or to have developed your intellect in some way.

HIGH-CONTEXT VERSUS LOW-HIGH-CONTEXT VERSUS LOW-CONTEXT CULTURESCONTEXT CULTURES

– You will note that the people here are very proud of their past and of their Spanish blood, but they are also exceedingly proud of their liberation from Spain and their independence.

– Well, down here, you have to wait much longer, and I really mean much, much longer, before you can begin to talk about the reason for your visit.

– There is another point I want to caution you about. At home, the man who sells takes the initiative. Here, they tell you when they are ready to do business. But, most of all, don’t discuss price until you are asked and don’t rush thing.

Part 14: Global Part 14: Global Segmentation and Segmentation and

PositioningPositioning

Liaoning University

Dr Yuanyuan Xing


Global Segmentation and Global Segmentation and PositioningPositioning

Global Segmentation and Global Segmentation and PositioningPositioning

• Overview– Grouping consumers within countries

into homogenous segments– Use of strategically equivalent segments– Use of macro and micro data– Implications for positioning– Tools for forming groups

Input into segmentsInput into segments Input into segmentsInput into segments

Economic

Cultural

Political

Macro variables

Segment

Micro variables

Environment

Market research

Criteria for good Criteria for good segmentationsegmentation

Criteria for good Criteria for good segmentationsegmentation

• Screening markets– market entry based on KSFs

• A viable segment is:– measurable– sizeable– accessible– actionable– competitive– growing

Reasons for Reasons for segmentationsegmentation

• find common purchase motives• build global segments

– economies of scale

• alternative to close psychic distance• screening markets/countries

– based on macro data despite limitations– develop criteria for go/no go and those with

future possibilities– niche players screening based on low

competitive pressure

Macro segmentationMacro segmentation - Market - Market Intensity Intensity

and Growth Rates and Growth Rates

Five-year growth rates 1990-94

(percentage)

Mark

et

inte

nsi

ty (

Worl

d a

vera

ge =

100)

0

1

2

3

4

5

6

-20 0 20 40 60 80

USA 1 Japan 3

India 4

China 2

Russia 6

Germany 5

UK 9

Canada 12Italy 8

France 7

Brazil 10 Argentina 19Taiwan

16Indonesia 15

Turkey 17

Spain 14

Mexico 11

Macro Segmentation Macro Segmentation Demographic/Cultural SegmentationDemographic/Cultural Segmentation

- - Cathay Cathay Pacific airlines Pacific airlines

Macro Segmentation Macro Segmentation Demographic/Cultural SegmentationDemographic/Cultural Segmentation

- - Cathay Cathay Pacific airlines Pacific airlines

0

10

20

30

40

50

60

70

80

P

o

p

u

l

a

t

i

o

n

i

n

M

i

l

l

i

o

n

s

Hong Kong Malaysia V ietnam Singapore Philippines Taiw an

V ietnamese

Other

Malay and Indigenous

Indian

Chinese

PRC population of ethnic Chinese: 1.12billion

Ethnic Chinese

Total ethnic Chinese population in these countries = 39 million + PRC vs < 3.5 million in HK

Positioning strategyPositioning strategy Cathay Pacific based in Cathay Pacific based in

Hong KongHong Kong

Positioning strategyPositioning strategy Cathay Pacific based in Cathay Pacific based in

Hong KongHong KongCathay PacificPositioned asAsian airline with:• Meals• Entertainment • Cabin interiors

NewNew““brushwinbrushwing”g”logologo

SloganSlogan

Micro Segmentation Micro Segmentation Micro Segmentation Micro Segmentation • Overcomes problems with macro segments since consumer behaviour is not uniform within countries

1. Micro segmentation from within country data (segments are equivalent, not the same - SES approach)

2. strategies less standard than with universal segments

3. Consolidate across countries

Approach

Country A (segment 1a)Country A (segment 1a)Country B (segment 1b)Country B (segment 1b)

Country C (segment 1c)Country C (segment 1c)

Consolidated segment 1a,1b,1c

Consolidated segment 1a,1b,1c

Targeting

limited scale economies due to minor adjustments to marketing mix

Targeting

limited scale economies due to minor adjustments to marketing mix

Universal SES Universal SES segmentsegment

• SES: Strategically Equivalent Segment* Transnational segments

• consumers likely to respond similarly to marketing mix

• segmentation for product class

– similarities in microsegments in qualified countries

• lifestyles• personality• culture

– Marketing mix directed at segment/s• a viable SES segment will enable economies of scale

SES ApproachSES ApproachQualifying dimensions Geographic location

Support servicesLegal/economic conditionsPolitical climate

Determining dimensions Socioeconomic DemographicPersonality and lifestyle

Country A B C1

23

1

3

4

15

6

1

Large combined cross national segment •responds to equivalent marketing mix•enable scale economies

Combined SES Segment

BehaviourBehaviour based based segmentationsegmentation

0% 50% 100%

Canada

Greece

Ireland

ItalyFB&T

C&F

HH

MH

T&C

R&E

Other0% 50% 100%

Canada

Greece

Ireland

ItalyFB&T

C&F

HH

MH

T&C

R&E

Other

Consumer Expenditure Patterns of Selected Countries -- Percentage of Total Spending

KEY: FB&T = Food, Beverages, & Tobacco; C&F = Clothing & Footwear; HH = Household Expenses; MH = Medical Health; T&C = Transpor- tation & Communications; R&E = Recreation & Education

Lifestyle and valuesLifestyle and values - - Global Global segments based on BSB Global segments based on BSB Global

ScanScan

Japan US UK

22%

17%

19%

18%

22%

26%

22%

14%

12%

14%

29%

18%

12%

16%

17%

Strivers

Achievers

Pressured

Traditionalists

Adaptors

Source: Keegen and Green 1997, p.180

Similar global attitudes across 18 countries

•psychographically similar

•differences in how segments translate into preferences

•US Strivers short of time and money

•cars - fun, stylish and value for money

•Japanese strivers not short of money

•cars - extension of home, accessories important

•Customised marketing mix

•Contrast with SES approach

•requires equivalent strategy across markets

•psychographically similar

•differences in how segments translate into preferences

•US Strivers short of time and money

•cars - fun, stylish and value for money

•Japanese strivers not short of money

•cars - extension of home, accessories important

•Customised marketing mix

•Contrast with SES approach

•requires equivalent strategy across markets

Values and Lifestyle Values and Lifestyle Segments Segments - Problems - Problems Values and Lifestyle Values and Lifestyle Segments Segments - Problems - Problems

• Not specific product related• Popular with advertisers

– likelihood of responding similarly to promotional messages

– values• too general to predict consumption patterns

– greater specificity associated with greater predictive power

• not always actionable, not stable and applicability can be limited

Segmentation ToolsSegmentation Tools Segmentation ToolsSegmentation Tools

Cluster Analysis

Development of homogenous clusters from micro or macro level data

Distance = (X country A - X country B )2+(Y country A -Y country B)2

Where: X, Y are segmentation variableseg. X = buying power (PPP)

Y = culture variables (Power Distance)Distance score • differences between data from different measures• allows classification into 2 or more clusters • enables analyst to place consumers into one group or another

Cluster AnalysisCluster Analysis Cluster AnalysisCluster Analysis

Cluster 1

Cluster 2

Segm

en

tati

on v

ari

able

y

(eg.

cult

ure

)

Segmentation variable X (eg. buying power)

Cluster analysis - an Cluster analysis - an example example

Cluster analysis - an Cluster analysis - an example example

Two variables

X = category growth

Y = concentration

Task

to group consumers from countries into two or more homogeneous groups (clusters)

Two cluster solutionTwo cluster solution Two cluster solutionTwo cluster solution

Interpretation:

Canada and UK are more similar than the group of other countries using these variables

Clustering based on two variables, often based on multiple variables and multiple clusters are formed

Three clustersThree clusters Three clustersThree clusters

Usefulness of this is questionable since a cluster of one country is less efficient

Regression analysisRegression analysis Regression analysisRegression analysis

Contrasts with cluster analysis which is a classificatory method

Regression: use of one or more independent variables to predict dependent variable

Y = a + b1X1 + b2x2 + b3X3……..

Microwave ownership

Y

X

Y = a + bx

- 0.5 (frozen food)

+2.7 (women in wf)

t = 2.9

- 0.3 (GDP/Cap)

-76.7R2 = 0.52

only significant variable

Conclusions Conclusions Conclusions Conclusions

• Use of macro and micro data – to form market clusters– SES

• economies of scale

– classification of markets and segments

• Cluster analysis and regression analysis – tools to develop these

Global Global Manufacturing: Key Manufacturing: Key

Terms Terms• Supply chain: - Coordination of materials, information

and funds from the initial raw material supplier all the way to the final consumer

• Logistics: - Part of the supply chain that plans,

implements and controls efficient, effective flow and storage of goods, services and related information from the point of origin to the point of consumption

Key Terms (con’t)Key Terms (con’t)

• Manufacturing compatibility: - focus on cost, efficiency, quality,

flexibility and innovation• EDI: - electronic data interchange between

all relevant parties• ERP: - enterprise resource planning software

that links data and organisations

Regional Economic Groupings

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