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exported from the United States. Discussion of the case can revolve around the following
questions:
QUESTION 1: What are the potential economic benefits of the trucking provisions in the
NAFTA treaty? Who benefits?
ANSWER 1: Under the NAFTA agreement trucks from Mexico are no longer required
to unload their goods and reload them onto U.S. trucks. Instead, Mexican trucks can
simply cross the border and continue to their final destination. These changes save time
QUESTION 2: What do you think motivated the Teamsters to object to the trucking
provisions in NAFTA? Are these objections fair? Why did Congress align itself with the
Teamsters?
ANSWER 2: The Teamsters have rigorously objected to the provisions of NAFTA
allowing Mexican truckers to cross U.S. borders and deliver their goods to their
destination. Prior to NAFTA, Mexican trucks were required to reload their goods onto
U.S. trucks at the border. The Teamsters are worried not only about the loss of this
QUESTION 3: Does it make economic sense for the United States to bear the costs of
punitive tariffs as allowed for under NAFTA, as opposed to letting Mexican trucks enter
the United States?
ANSWER 3: When the United States initially failed to abide by provisions set forth in
NAFTA regarding trucks, Mexico gave the country a second chance to honor its
commitment. The United States responded with bureaucratic measures designed to block
Chapter 09 – Regional Economic Integration
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Another Perspective: To learn more about the trucking conflict between the United States
and Mexico go to {http://www.businessweek.com/news/2011-11-08/mexican-trucks-
stay-home-after-17-year-push-to-open-u-s-border.html} and
{http://www.businessweek.com/news/2011-10-14/mexico-to-lift-tariffs-as-u-s-approves-
trucking-permit.html}.
INTEGRATING iGLOBES
There are several iGLOBE video clips that can be integrated with the material presented
in this chapter. In particular, you might consider the following:
Title: ‘No Clear Path Forward” For Eurozone As Economic Woes Continue
Run Time: 9:55
Abstract: This video explores the crisis in the European Union, and specifically within
the Eurozone countries, and what it could mean for the United States if it is not quickly
resolved.
Key Concepts: European Union, euro, Eurozone, global economy, exports, trade,
foreign investment, political economy, globalization, global capital markets, economic
integration, globalization of production, political and economic risk
Notes: The problems in the European Union and specifically in the Eurozone countries
have gone from bad to worse with two previously “strong” countries, France and
Germany, now showing signs of weakness. The bloc’s problems emerged almost two
years ago when the European Union’s poorer countries including Greece, Portugal, Italy,
and Spain began to show signs of trouble. Now, thanks to both general fear and real
problems, it seems that the financial uncertainty has spread to what had been relatively
healthy economies.
Germany, long a dominant force in the Eurozone, relies on other Eurozone countries as
markets for about two-thirds of its exports. As growth in these markets has stalled so too
has demand for German products. In fact, the bloc as a whole grew just two-tenths of
one percent in the second quarter of 2011. Now, in recognition of the fact that a
coordinated policy is necessary if the bloc is to survive, discussions are underway to
create European fiscal union. When the Eurozone was established a decade ago, a
common currency was introduced, but a common fiscal policy was not implemented.
Now, France’s President Nicholas Sarkozy and German Chancellor Angela Merkel are
leading the charge to coordinate the group’s corporate and tax base policy. Even with
this new effort however, there is still concern that it may not be enough. Analysts warn
that bold actions are necessary.
The United States is watching the situation in Europe carefully. The European Union
buys some 25 percent of U.S. exports so it is critical to the health of the U.S. economy
Chapter 09 – Regional Economic Integration
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that Europe’s economy is stable and growing. Already the U.S. Treasury Department,
the Federal Reserve, the European Central Bank, and the European financial authorities
are meeting regularly to assess the situation and consider alternative actions. Perhaps
most alarming however, is that conditions in both the United States and Europe seem to
be getting worse, not better. Furthermore, there is no clear strategy going forward of how
best to address the situation and in doing so, ward off a potential crisis.
Discussion Questions:
1. Explain the various levels of economic integration. What level of integration has the
European Union achieved? How will plans to create fiscal union change the relationship
between member countries?
2. Why is Germany now leading the charge for fiscal coordination? How has Germany’s
reliance on the Eurozone countries contributed to its own economic slowdown?
3. Reflect on the notion of fiscal union within the European Union. Why is it becoming
necessary? Can it be achieved quickly enough to avert financial disaster within the
trading bloc?
4. Consider the crisis in Europe from the perspective of the United States. How would
financial collapse in Europe affect the United States?
INTEGRATING VIDEOS
There are also several longer video clips that can be integrated with the material
presented in this chapter. In particular, you might consider the following from
International Business DVD Volume 6:
Title: Twitter and Haiti
Learning Objectives
The purpose of this video is to help you:
❖ Understand how social media platforms are increasing the pace of globalization.
❖ Examine how new methods of communication are replacing more traditional ones.
❖ Recognize the marketing implications of how people communicate via social media.
❖ Explore how social media platforms may be changing social activism.
Key Words
❖ Globalization
❖ Global economy
❖ Technological change
❖ Cultural change
❖ Levels of economic development
Chapter 09 – Regional Economic Integration
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Synopsis
When the earthquake hit Haiti last year, many people, both within the country and
outside, immediately got on Twitter and Facebook to get information about what was
happening, and to communicate with each other. This crisis was one of the first of its
kind in that rather than using more traditional forms of communication like the telephone
or television, large numbers of people turned to new forms of technology like Twitter and
Facebook. Even news reporters were scanning postings to learn more about the crisis.
This may reflect a global trend in which social media platforms are replacing long
established means of communication.
After the earthquake, many people posted messages to family members indicating that
they had survived and providing information about other friends and families. Some
people also provided details about what had occurred and what they had seen. Some
postings included information about problems that would probably occur as a result of
the earthquake such as shortages of medical supplies and water. People outside Haiti
were able to learn from these accounts of the extent of the devastation, and get a feel for
what was ahead for the Haitian people and the country as a whole.
Twitter and Facebook were also the first choice for many social activists and global
health organizations involved with the crisis. Social activists were able to leverage the
power of the social media platforms to reach out to people for help. Wyclef Jean, a
popular Haitian musician, asked his 1.3 million Twitter followers to donate money to
help for example. Interestingly, the efforts of activists like Jean were made easier
because of the availability of social media platforms and cell phones. People could
respond to their requests simply by sending a text message indicating their willingness to
donate money. Global organizations like the Red Cross were also able to use social
media platforms to raise awareness of the needs of the Haitian people and to organize
contributions.
Discussion Questions
1. Discuss how new technologies emerged as a preferred form of communication after the
earthquake in Haiti. What conclusions might a company targeting consumers in a
developing country like Haiti draw from this phenomenon?
2. What challenges do social network platforms like Twitter and Facebook face in
developing countries? Why might first mover advantages be important in these markets?
3. Reflect on the differences in how people use social networking platforms based on
their geographic location. How can companies capitalize on the growing use of social
media networks in developing countries and emerging markets?
4. Discuss how social media platforms are changing the way social activists raise
awareness and gain support for their causes. How can companies that support social
causes leverage these same opportunities?
Chapter 09 – Regional Economic Integration
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INCORPORATING globalEDGE™ EXERCISES
Use the globalEDGE™ site {http://globalEDGE.msu.edu/} to complete the following
exercises:
Exercise 1
Your company is seeking to expand by opening new customer representative and sales
offices in the European Union (EU). The size of the investment is significant and top
management wishes to have a clearer picture of the current and probable future status of
the EU. A colleague who spent some time living in the EU indicated that Eurostat might
be a comprehensive source to assist in your project. After evaluating the state of the EU
based on the statistics and publications available, prepare an executive summary
describing the features you consider as crucial in completing your report.
Exercise 2
Trade agreements can impact the cultural interactions between countries. In fact, the
establishment of the Free Trade Area of the Americas (FTAA) can be considered a threat
as well as an opportunity for your company. Identify the main negotiating groups a
country must consider when a member. Choose two negotiating groups and justify their
importance to member countries.
Answers to Exercises
Exercise 1
A variety of reports and statistics can be accessed by searching the term “Eurostat” at
http://globaledge.msu.edu/ResourceDesk/. At the bottom of the linked Eurostat webpage
are a series of publications, tables, and data that are useful for completing this exercise. In
addition, the Publications tab found at the top of the webpage can provide considerable
material for an analysis. Be sure to click on the Resource Desk link to search this area of
the globalEDGE website.
Search Phrase: “Eurostat”
Resource Name: EUROPE: Eurostat
Website: http://epp.eurostat.ec.europa.eu/
globalEDGE™ Category: “Research: Statistical Data Sources”
Exercise 2
A variety of reports and statistics can be accessed by searching the term “Eurostat” at
http://globaledge.msu.edu/ResourceDesk/. At the bottom of the linked Eurostat webpage
are a series of publications, tables, and data that are useful for completing this exercise. In
addition, the Publications tab found at the top of the webpage can provide considerable
material for an analysis. Be sure to click on the Resource Desk link to search this area of
the globalEDGE website.
Search Phrase: “Eurostat”
Chapter 09 – Regional Economic Integration
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Resource Name: EUROPE: Eurostat
Website: http://epp.eurostat.ec.europa.eu/
globalEDGE™ Category: “Research: Statistical Data Sources”
End of Part Case Notes
Part Three:
Logitech
1. In a world without trade, what would happen to the costs that American consumers
would have to pay for Logitech’s products?
Answer: Logitech moved its manufacturing to Taiwan and China in an effort to save
money and maintain a competitive advantage. While labor costs were a factor in the
decision to shift its manufacturing, other costs were also considered. The case notes that
2. Explain how trade lowers the costs of making computer peripherals such as mice and
keyboards?
Answer: The theories of Smith, Ricardo, and Hecksher-Ohlin show why it is beneficial
for a country to engage in international trade even for products it is able to produce for
3. Use the theory of comparative advantage to explain the way in which Logitech has
configured its global operations. Why does the company manufacture in China and
Taiwan, undertake basic R&D in Freemont and Switzerland, design products in Ireland,
and coordinate marketing and operations from California?
Chapter 09 – Regional Economic Integration
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Answer: The theory of comparative advantage suggests that it makes sense for a country
to specialize in producing those goods that it can produce most efficiently, while buying
4. Who creates more value for Logitech, the 650 people it employs in Fremont and
Switzerland, or the 4,000 employees at its Chinese factory? What are the implications of
this observation for the argument that free trade is beneficial?
Answer: Logitech has taken great care in configuring its global value chain to lower
5. Why do you think the company decided to shift its corporate headquarters from
Switzerland to Fremont?
Answer: Switzerland is still important to Logitech. Indeed the company undertakes basic
R&D work there. However, in an effort to be closer to many of America’s high–
6. To what extent can Porter’s diamond help explain the choice of Taiwan as a major
manufacturing site for Logitech?
Answer: According to Porter, four broad attributes of a nation shape the environment in
which local firms compete, and these attributes promote or impede the creation of
Chapter 09 – Regional Economic Integration
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7. Why do you think China is now a favored location for so much high technology
manufacturing activity? How will China’s increasing involvement in global trade help
that country? How will it help the world’s developed economies? What potential
problems are associated with moving work to China?
Answer: Foreign companies now account for three-quarters of China’s high tech exports.
Porter’s diamond would suggest that like Taiwan, China has strong factor endowments
The Ecuadorian Rose Industry
1. What is the basis of Ecuador’s comparative advantage in the production of roses?
Answer: Ecuador, with its intense sunlight, fertile volcanic soil, equatorial location, and
high altitude provides the perfect conditions for growing roses. In addition, wage rates in
2. Most Ecuadorean roses are sold in the United States or Europe. Who in these countries
benefits from the importation of Ecuadorean roses, and how do they benefit? Who loses?
Do you think the benefits outweigh the costs?
Answer: Roses imported from Ecuador have transformed the floral industry in both
Europe and the United States. Prior to the growth of Ecuador’s rose industry, roses were
available only in limited quantities and varieties, and were generally very expensive in
3. How does the rose export industry benefit Ecuador? Do these benefits have any
implications for the United States and Europe?
Chapter 09 – Regional Economic Integration
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Answer: Ecuador is now the world’s fourth largest producer of roses. Rose farms in the
country support tens of thousands of jobs. Revenues and taxes from the industry have
been used to help pave roads, build schools, and construct irrigation systems. Many
4. How should developed nations respond to reports of poor working conditions in this
industry? Should importers in some way certify Ecuadorean producers, only importing
from those who adhere to strict labor and environmental standards?
Answer: The question of whether the working conditions are appropriate in developing
nations strikes an ethical chord with many people. Most students probably agree that it is
Another Perspective: For more information on the rose industry in Ecuador, visit
Chapter 09 – Regional Economic Integration
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The European Energy Market
1. What do you think are the economic benefits of liberalizing the EU energy market?
Who stands to gain the most from liberalization?
2. What are the implications of liberalization for energy producers in the EU? How will
the environment they face change post liberalization? What actions will they have to
take?
Answer: Efforts to liberalize the energy markets in the European Union have met with
considerable resistance from producers and in some cases from local governments. At
3. Why is the de-integration of large energy companies seen as an important part of any
attempt to liberalize the EU energy market?
Answer: The European Union believes that it is necessary to de-integrate large energy
companies in order to liberalize the energy markets in the bloc. At the moment, most
4. Why do you think progress towards the liberalization of the EU energy market has
been slow so far?
Answer: In 2007, national energy ministers rejected a request from the European
Commission to de-integrate the energy companies. France and Germany have been
Chapter 09 – Regional Economic Integration
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Global Food Prices
1. Who benefits from government policies to a) promote production of ethanol and b)
place tariff barriers on the imports of sugar cane? Who suffers from these policies?
Answer: Government policies to promote the production of ethanol, like many other
types of market intervention, are designed to help the producer with little regard for the
consumer. In this particular situation, U.S. and EU farmers are receiving subsidies for
2. One estimate suggests that if food prices rise by one third, they will reduce living
standards in rich countries by about three percent, but in very poor ones by about twenty
percent. According to the International Food Policy Research Institute, unless there is a
change in policies, cereal prices will rise by 10-20 percent by 2015, and the expansion of
bio-fuel production could reduce calorie intake by 2-8 percent by 2020 in many of the
world’s poorest nations. Should rich countries do anything about this? If so, what?
Answer: This is a difficult question that will probably stir some debate. For decades,
consumers have enjoyed the benefits of increased productivity and output in the global
food industry. In 2007, however, everything changed. The price of wheat reached its
Chapter 09 – Regional Economic Integration
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3. The argument for giving subsidies to ethanol producers rests upon the assumption that
ethanol results in lower CO2 emissions than gasoline, and therefore benefits the
environment. If we accept that global warming is itself a serious problem, should we not
be encouraging government to increase such subsidies? What are the arguments for and
against doing so? On balance, what do you think is the best policy?
Answer: While most students will probably agree that global warming is a serious
problem that must be addressed, they will probably also conclude that simply providing
subsidies to farmers who produce soy or corn is not a solution. Indeed, most scientists
agree that ethanol produced from sugar cane is superior to that produced from corn or soy