Global marketing is defined as the marketing across national frontiers by use of integrated coordination of the firms marketing activities throughout the world. The basic tools and concepts of marketing are applied to satisfy customer demand. In international marketing, the environment of operation differs from country to country: with services and facilities price different and trade blocks of different kind existing. The cultural; legal, economic, political and other environments also differ substantially among nations. (Bennett and Blythe 2002) This paper will examine the different trade groupings at the international level of marketing and try to explain their differences.
Differences between free trade area, a customs union, a common market, and an economic union
A free trade area is defined as a grouping of nations that remove trade barriers against each other. ( Bennett and Blythe 2002). These nations however independently continue to determine and apply their own unique set of barriers (tariff, quotas etc) to the entry of imports from countries who are not members of the free trade area e.g. NAFTA-North America Free Trade Area comprising of Canada, United States and México.
Development of free trade areas is considered to be the second stage in economic integration. This form of economic integration is easy for countries that have complementary economical structures. Countries that are competitive prefer customs unions. (Richard P 2001).Free trade area members employ different trade policies to non-members, meaning different customs and quotas. The case is reverse in customs union. Countries avoid evasion done through re-exportation by certifying the origin of goods.
This rule sets the minimum extent to which goods can be modified or added value. In the customs union goods there is no special treatment for goods that do not meet these requirements unlike the case in free trade area. The free trade area aims to reduce barriers to easy exchange and enables trade to grow through specialization, division of labour, and most importantly through the comparative advantage. (Richard P 2001)
In industrialized countries, barriers to trade between parts of the countries are usually very few. Trade tariffs or import quotas are usually absent and there are no delays in passage of goods between parts of the country. Differences in regulation and taxation are also absent.
Custom unions differ from free trade areas in that, within the union a common external tariff is applied to import from the rest of the world. This union on the other hand has a free trade within the union. E.g. CARICOM – the Caribbean Customs Union which include 14 Island states. The quota and tariff applied in union are determined by the union as a whole and not by individual country members. The Common competition policy among this union members helps to avoid competition.
A customs union is usually established with the aim of creating closer cultural and economic ties, and increasing economic efficiency between members. In terms of economic integration the customs union is thought to be the third stage of economic integration and it is established through a trade pact. Another example is the EU-Turkey customs union, which has been in effect since 1996. (Dennis 2000)
Common markets have free movement of goods and services among member states. Capital Business procedures and methods, rules and competition are harmonized among member states. The markets liberalize movement of regional production facts. Commercial laws are drafted by the authorities of the common market and they override domestic national legislation e.g. the south and central America have two common markets namely MERCOSUR-Mercedo Commundel Cono Sur (made up of Argentina, Uruguay. Brazil and Paraguay) and the ANCOM (the Andean common market) composed of Colombia Venezuela, Ecuador, Peru and Bolivia.
Member countries come together to create a common market with one goal of making the movement of capital, labor, goods and services between the members with ease. This is the fourth stage of economic integration. Sometimes a single market is taken as a more advanced form of common market. Single markets envision more efforts geared towards removing the technical, physical and taxes barriers between the state members. The member counties have to make common economic policies and be politically willing to remove these barriers. (Campbell B 1972).A single market has many benefits. The central benefit is to increase of division of labor and the consequent increase in productivity. Other merits include effective allocation of factors of production with their full freedom of movement. This increases productivity further.
In an economic union, countries come together and form an agreement that allows the free movement of capital-labor, and all goods and services. The agreement which can be either between two or more countries depending on how they agree, involves the harmonization and amalgamation of social, economic, and monetary studies. The European Union is an example of an economic union, which is a collection of countries in Europe. These countries have agreements in terms of treaties that guide the way they allow trade between them. The system of law applies in all member states, guaranteeing the freedom of movement of people, goods, services and capital. (Jacques P 2007)
The major similarities exhibited by these trade blocks are based on their free movements of goods and services between member states. These countries come together to improve and remove trade barrier that affects trading between them.
Blythe, B J 2002, International Marketing: Strategy Planning, Market Entry & Implementation, Kogan Page publishers.
Campbell, B 1972, Industrial Relations in the Common Market, Routledge.
Dennis, S 2000, The Economics of Europe to European Union from Common Market, Penguin.
Jacques, P 2007, Market Integration in the European Community, Springer.
Richard, P 2001, The Economics of Regional Trading Agreements, Oxford University Press.