978-0134129945 Chapter 3 Lecture Note Part 2

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ASIA-PACIFIC: The Association of Southeast Asian Nations (ASEAN)

(Learning Objective #5)

The Association of Southeast Asian Nations (ASEAN) was established in 1967 as an

organization for economic, political, social, and cultural cooperation among its member

countries.

The original six members of ASEAN were:

Brunei

Indonesia

Malaysia

the Philippines

Singapore

Thailand

Vietnam became the first Communist nation in the group when it was admitted to ASEAN in

July 1995

Cambodia and Laos were admitted at the organization’s thirtieth anniversary meeting in July

1997.

Burma (known as Myanmar by the ruling military junta) joined in 1998.

Individually and collectively, ASEAN countries are active in regional and global trade. ASEAN’s

top trading partners include Japan, the United States, the European Union, and China.

Recently, Japan, China, and Korea were informally added to the member roster; some observers

called this configuration “ASEAN plus three.” When the roster expanded again to include

Australia, New Zealand, and India, it was dubbed “ASEAN plus six.”

January 1, 2010, marked the formal establishment of a new China/ASEAN FTA. The New FTA

removes tariffs on 90 percent of traded goods.

In fewer than three decades, Singapore has transformed itself from a British colony to a vibrant,

240-square-mile industrial power.

Singapore has an extremely efficient infrastructure – the Port of Singapore is the world’s second-

largest container port (Hong Kong’s ranks first) – and a standard of living second in the region

only to Japan’s.

Singapore accounts for more than one-third of U.S. trading activities with ASEAN countries.

Marketing Issues in the Asia-Pacific Region

The ten ASEAN nations are slated to launch an economic bloc called the ASEAN Economic

Community (AEC). ASEAN is not a customs union, so import-export activities are conducted

with different procedures. As a result, goods can languish in ports for weeks while documents

are reviewed and approved.

The Cultural Context Bhutan and GNH (Gross National Happiness)

In this chapter and the last, national income data have been used to measure the total output of

each of the world’s economies. It has been argued, however, that indicators such as GDP and

GNI per capita are inadequate. According to some economists and policymakers, supplemental

indicators that measure things like social progress, quality of life, and sustainability are needed.

Bhutan is a kingdom of 700,000 people in the Himalaya Mountains. Per capita GNI is

approximately $2,030; using this figure as a metric, Bhutan can be assigned to the lower-middle-

income category of nations. However, for the past 40 years, Bhutan has relied on another

measure besides economic growth, namely Gross National Happiness (GNH).).

The GNH Index includes both objective and subjective indicators: psychological well-being,

time use, community vitality, culture, health, education, environmental diversity, living

standards, and governance. Not surprisingly, there is some disagreement among social scientists

regarding the best way to define, track, and measure such intangibles as happiness and quality of

life.

WESTERN, CENTRAL, AND EASTERN EUROPE

The countries of Western Europe are among the most prosperous in the world.

The European Union (EU)

(Learning Objective #6)

The EU began in 1958 with the Treaty of Rome and original members Belgium, France, Holland,

Italy, Luxembourg, and West Germany.

In 1973, Great Britain, Denmark, and Ireland were admitted, followed by Greece in 1981 and

Spain and Portugal in 1986.

The objective of the EU member countries is to harmonize national laws and regulations so that

goods, services, people, and eventually money can flow freely across national boundaries.

The EU encourages a community-wide labor pool and establishes rules of competition patterned

after U.S. antitrust law. Improvements to highway and rail networks are underway.

Finland, Sweden, and Austria joined in 1995

Cyprus, the Czech Republic, Estonia, Hungary, Poland, Latvia, Lithuania, Malta, the Slovak

Republic, and Slovenia became full EU members on May 1, 2004. Bulgaria and Romania joined

in 2007. Croatia, the newest member, joined July 1, 2013.

Today, the 28 nations of the EU represent 450 million people and a combined GDP of more than

$15 trillion (See Figure 3-8).

The 1992 signing of the Maastricht Treaty (Netherlands) set the stage for the creation of an

economic and monetary union with a European central bank and a single European currency, the

euro.

The euro brings the benefits of eliminating currency conversion costs and exchange rate

uncertainty.

In 2002, euro coins and paper money were issued to replace national currencies such as the

French franc.

Marketing Issues in the European Union

The European Commission establishes directives and sets deadlines for their implementation by

legislation in individual nations.

The business environment in Europe has undergone considerable transformation since 1992 with

significant implications for all elements of the marketing mix.

Marketing mix issues must be addressed in Europe’s single market (e.g., content and other

product standards that varied among nations must be harmonized). Harmonization means that

content and other product standards that varied among nations have been brought into alignment.

Direct comparability of prices in the euro zone forces companies to review pricing policies; the

marketing challenge is to develop strategies to take advantage of a large, wealthy market.

The enlargement of the EU will further impact marketing strategies and harmonized laws; food

safety laws in the EU are different from those in Central European countries.

Central and Eastern Europe

Because they are in transition, the markets of Central and Eastern Europe present interesting

opportunities and challenges.

Global companies view the region as an important new source of growth, and the first country to

penetrate a country market often emerges as an industry leader.

Exporting has been favored as a market entry mode, but direct investment is on the rise; low

wage rates, below Spain, Portugal and Greece, make this region attractive for low-cost

manufacturing.

January 1, 2015, marked the launch of the Eurasian Economic Union (EEU) integrating Russia,

Belarus, and Kazakhstan. Russian President Vladimir Putin views the EEU as a cornerstone of

Russian economic growth.

A study found a high degree of standardization of marketing program elements; the core product

and brand elements were largely unchanged from those used in Western Europe.

THE MIDDLE EAST

(Learning Objective #7)

The Middle East includes 16 countries:

Afghanistan

Bahrain

Cyprus

Egypt

Iran

Iraq

Israel

Jordan

Kuwait

Lebanon

Oman

Qatar

Saudi Arabia

Syria

The United Arab Emirates

Yemen

The majority is Arab, a large percentage Persian, and a small percentage Jews. The population is

95 percent Muslim and 5 percent Christian and Jewish.

Despite apparent homogeneity, many differences exist. Middle Eastern countries fall into all

categories of the Index of Economic Freedom.

The Middle East lacks a single societal type with a typical belief, behavior, and tradition; each

major city has many social groups, different in religion, social class, education, and wealth.

The price of oil drives business. Bahrain, Iraq, Iran, Kuwait, Oman, Qatar, and Saudi Arabia hold

significant world oil reserves which have widened the gap between rich and poor nations.

In 2011, the region was rocked by demonstrations and protests that have been described as “the

Arab awakening” and “the Arab spring”.

Disparities contribute to political and social instability. Obama lifted some sanctions and named

an ambassador to Syria.

Cooperation Council for the Arab States of the Gulf

The key regional organization is the Gulf Cooperation Council (GCC), which was established in

1981. The six gulf countries hold about 45 percent of the world’s known oil reserves, but

production is only about 18 percent of world oil output (see Figure 3-9 and Exhibit 3-10).

Saudi Arabia and other Middle Eastern countries post account deficits because they import most

goods and services and depend on oil revenues to pay for imports.

The organization provides coordination, integration and cooperation in all economic, social, and

cultural affairs.

GCC committees coordinate trade development, industrial strategy, agricultural policy, and

uniform petroleum policies and prices.

Goals include establishing an Arab Common Market and increasing trade ties with Asia.

In 1989, two other organizations were formed:

Morocco, Algeria, Mauritania, Tunisia, and Libya formed the Arab Maghreb Union

(AMU);

Egypt, Iraq, Jordan, and North Yemen created the Arab Cooperation Council (ACC).

Many Arabs see their new regional groups (GCC, ACC, and AMU) as embryonic economic

communities to foster the development of inter-Arab trade and investment.

Marketing Issues in the Middle East

Connection is a key word in conducting business in the Middle East; developing relationships

with key business and government figures is likely to cut through red tape.

Bargaining is culturally ingrained, and business people should be prepared for haggling;

establishing personal trust, mutual trust, and respect are essential.

Decisions are not made by correspondence or telephone. The Arab businessperson does business

with the individual, not the company.

Women are not usually part of the business or entertainment scene for traditional Muslim Arabs.

AFRICA

(Learning Objective #8)

The African continent is an enormous landmass which a territory of 11.7 million square miles. It

is not really possible to treat Africa as a single economic unit.

The 54 nations on the continent can be divided into three distinct areas:

the Republic of South Africa,

North Africa, and

sub-Saharan or Black Africa.

With 1.3 percent of the world’s wealth and 11.5 percent of its population, Africa is a developing

region with an average per capita income of less than $600.

The Arabs living in North Africa are differentiated politically and economically from the rest of

Africa.

The six northern nations are richer and more developed, and several—notably Libya, Algeria,

and Egypt— benefit from large oil resources.

The Middle East and North Africa are viewed as a regional entity “Mena”; the economies of non-

oil, “emerging Mena” (Jordan, Lebanon, Morocco, Tunisia) have performed well in recent years.

Economic Community of West African States (ECOWAS)

The Treaty of Lagos establishing the Economic community of West African States (ECOWAS)

was signed in 1975 to promote trade, cooperation, and self-reliance in West Africa:

Benin

Burkina Faso

Cape Verde,

The Gambia,

Ghana

Guinea

Guinea-Bissau

Ivory Coast

Liberia

Mali

Mauritania

Niger

Nigeria

Senegal

Sierra Leone

Togo

In 1980, members established a free trade area for unprocessed agricultural products and

handicrafts. By 1990, tariffs on twenty-five items had been eliminated, with measures taken to

create a single monetary zone by 1994.

Still, economic development has occurred unevenly in the region.

East African Cooperation

Kenya, Uganda, Tanzania, Rwanda, and Burundi are the five nations that comprise the world’s

newest common market (see Figure 3-10). The East African Community’s origins date back

more than 40 years, but it has only been since 1999 that substantial progress has been made

toward integration and cooperation. Today’s East African Community has evolved through

several of the stages listed in Table 3-2. In 2005, a customs union was implemented.

South African Development Community (SADC)

SADC promotes trade, cooperation, and economic integration; members include:

Angola

Botswana

Democratic Republic of Congo

Lesotho

Malawi

Mauritius

Mozambique

Namibia

South Africa

Seychelles

Swaziland

Tanzania

Zambia,

Zimbabwe

The goal is a fully developed customs union. South Africa joined the community in 1994, and

represents 75 percent of regional income and 86 percent of intraregional exports

In 2000, an 11-nation free trade area was finally established. South Africa and the EU signed a

Trade, Development, and Cooperation Agreement (TDCA) in 2000.

South Africa, Botswana, Lesotho, Namibia, and Swaziland belong to the Southern African

Customs Union (SACU).

Marketing Issues in Africa

In 2000, President George W. Bush signed the African Growth and Opportunities Act (AGOA)

into law. Created with the theme of “Trade, not Aid”, the law is designed to support African

nations that make significant progress toward economic liberalization.

AGOA also represents a formal step toward a U.S.-Africa free trade zone.

TEACHING TOOLS AND EXERCISES

Additional Cases:

“Airwide International” by John Zerio, Samarth Sangal, Tanmay Saraykay, 10/09. HBS: TB 001.

“ASIMCO Technolgoies: 2005″ by Xi Liu; Taehoo Kim; Liang Liu; Guangyu Nie; Wanhong

Shao; Xiaotian Xie HBS: 910A01-PDF-ENG.

“Inclusion: The More the Merrier – Why It’s Important in Marketing and Politics” John A.

Quelch, Katherine A. Jocz, HBS 7857BC, Press Chapter.

“Nations: No Quick Fix – Applying Marketing Concepts to How They Compete”, Hohn A.

Quelch, Katherine A. Jocz, HBS 7861BC.

Activity: Students should be preparing or presenting their Cultural-Economic Analysis and

Marketing Plan for their country and product as outlined in Chapter 1.

Video:

This video is an interview with an international marketing consultant discussing different global

marketing strategies. This video can fit well into many of the chapters. It highlights the features

and considerations necessary when developing an international marketing strategy.

Link: http://www.youtube.com/watch?v=iHChY9zVHJ8

Out-Of-Class Reading:

Mejias, Roberto J. and Jose G. Vargohernandez. “Emerging Mexican and Canadian Strategic

Trade Alliances under NAFTA. Journal of Global Marketing 14, no. 4 (2001), pp. 89-

116.

Guest Speakers: Invite a student from a country on the euro (for example, Spain) and another

one from a country not on the euro (such as Brazil). Initiate a class discussion with the two on

the pros and cons of having a common currency.