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Chapter 7: Govt intervention and Regional Econ Integration - Coggle Diagram
Chapter 7: Govt intervention and Regional Econ Integration
How firms can respond to Govt Intervention;
Firms must cope with protectionism and other forms of intervention,
in extractive industries such as aluminium and petroleum, orgs have have little choice but to operate in nations that impose formidable barriers.
where as food processing, bio-tech and pharma industries encounter countless laws and regulations abroad.
Strats for managers(5);
Research to gather knowledge and intel;
Choose the most appropriate entry strat.
Take Advantage of Foreign Trade Zones(FTZ's),
FTZ's are an area with in a country that receives
e.g. a Successful experiment with FTZs has been the maquiladoras, Export-assembly plants in northern Mexico
Seek Favourable customs classifications for exported products.
Research to gather knowledge and intel;
Understand trade and investment barriers abroad. Scan the biz environment to id the nature of govt intervention.
Choose the most appropriate entry strat.
Most firms choose exporting initially, but if high tariffs are present other strats should be considered, such as licensing or FDI
Take Advantage of Foreign Trade Zones(FTZ's)
, for job creation and stimulus in local economic development, govts Est FTZs.
FTZ's are an area with in a country that receives imported goods for assembly or other processing and re-export, for customs purposes, the FTZ is treated as if it is outside the country
e.g. a Successful experiment with FTZs has been the maquiladoras, Export-assembly plants in northern Mexico
Seek Favourable customs classifications for exported products.
Reduce exposure to trade barriers by ensuring that products are classified properly
Take advantage of investment incentives and other government support programs.
e.g. Hong Kong Govt put up cash to build HK Disney Park.
e.g. Merc, received millions in subsidies to build a plant in Alabama
Lobby for freer trade and investment
;
Increasingly, nations are liberalizing markets in order to create jobs and increase tax revenues.
i.e. Japanese have achieved much success in reducing trade barriers by lobbying U.S. and European governments.
Regional Econ Integration;
The growing econ interdependence that results when nations within a geographic region form an alliance aimed at reducing barriers to trade and investment.
50% of world trade today occurs under some form of preferential trade agreements signed by groups of countries.
Co-op nations obtain
Increase product choice, Productivity, living standards and lower prices
More efficient resource use.
Levels of Regional Integration(5)
;
Ids 5 possible lvl of regional integration, we can think these of these lvl as a continuum.
2. Custom Union:
Similar to a free trade area except the members harmonize their trade policies toward non-member countries, by enacting common tariff and nontariff barriers on importing from non-members countries
3. Common Market;
similar to custom unions, save for products, services and factors of productions (Capital, labour and tech) can move freely among the member countries.
e.g. EU countries have many common labour and econ policies
4. Economic Union;
similar to a common market, but members also aim for market fiscal and monetary policies, and standardized commercial regulations. The EU is moving toward an econ union by forming a monetary union(a single currency is now in circulation).
5. Political Union;
Countries in an economic bloc share more or less the same political views and policies
1. Free trade area,
Simplest, most common arrangement. Members countries agree to slowly get rid of formal trade barriers, within the Econ Bloc, with each member maintaining independent international trade policies outside the country bloc
Advantages and Implications of Regional Integration for the Firm;
Advantages(4);
Expand Market Size,
greatly increase size the scale of firms inside an econ bloc.
Achieve Scale Econs and enhanced productivity;
expansion of the market size, within an econ bloc gives member-countries org the opportunity to increase scale of operation in both production and marketing, gains greater concentration and increase efficiency.
Attract direct investment from outside the Bloc,
Foreign firms like to invest in countries that are a part of their econ bloc .i.e. General mills and Samsung
Acquire stronger defensive and political pressure;
helps strengthen member-countries relative to other nations and world regions,
Implications(4);
Internationalized by firms inside the econ bloc;
Regional integration facilitates company internationalization. Expansion into neighbouring countries providing valuable exp, promoting internationalization to other markets worldwide.
Rationalization of operations;
By restructuring and consolidating company ops, managers can develop strats and value-chain activities suited to the region as a whole, not just indie countries. Goal is to cut costs and redundancy, and increase efficiencies via scale economies.
Regional products and marketing strat.
Firm cut cost by standardizing products and services. Case Inc/ Reduced it magnum line of tractors from 17 to only a few versions in EU following integration of the EU
Internationalization by firms from outside the bloc.
Due to external trade barriers mainly affect exporting many foreign firms prefer to enter a bloc through FDI. In this way recipient of FDI from the United States
Types and tools of government intervention
why government do this,
to generate revenue,
ensure citizen safety
To pursue economic, political, or social objectives. intended to promote job growth and economic development
to serve company and industrial interests
Tariff Tax,
Imposed on imported products.
Increases cost to the importer, the exporter, and usually the buyer of the product; discourages product imports; generates government revenue
Switzerland charges a 37% tariff on imported agricultural products. Bolivia charges a 35% tariff on most apparel and textiles.
Quota
Quantitative restriction on imports of a product during a specified period of time.
Gives early importers monopoly power and the ability to charge higher prices; harms late importers; usually results in higher prices to the buyer.
Japan maintains strict quotas on the import of leather shoes and various types of seafood.
Local content requirements
Requirement that firms include a minimum percentage of locally sourced inputs in the production of given products or services.
Discourages imports of raw materials, parts, and supplies, which harms manufacturers’ sourcing options; may result in higher costs and lower product quality for buyers.
At least 50% of the value of all cars assembled in Venezuela must be from parts or other inputs produced in Venezuela.
Regulations and technical standards
Safety, health, or technical regulations; labelling requirements.
May hinder the entry of imported products and reduce the quantity of available products, resulting in higher costs to importers and buyers
Saudi Arabia bans imports of firearms and used clothing. The EU requires extensive testing
on thousands of imported chemicals.
General rationale for government intervention
,
governments impose tariffs and other trade barriers to achieve various goals;
2 types, defensive rationale and offensive rationale.
Defensive rationale for government,
Protection of the national economy.
weak or young economies need protection foreign competitors.
i.e. India imposed barriers to shield its huge agricultural sector, which employs millions
Protection of an infant industry
.
A young industry may need protection, to give it a chance to grow and succeed. i.e. Japan long protected its car industry
National security.
The US prohibits exports of plutonium and similar products to North Korea
Offensive rationale for government intervention;
National strategic priorities
Protection helps ensure the development of industries that bolster the nation's economy. Countries create better jobs and higher tax revenues when they support high value-adding industries.
Increase employment
Protection helps preserve domestic jobs, at least in short term. However, protected industries become less competitive over time, especially in global markets, leading to job loss in the long run