Chapter Two:

International Marketing Environment

Introduction
One of the fundamental steps that need to be taken prior to beginning international marketing is the
environmental analysis. The marketing environment consists of all factors external to an organization that
can affect the organizations marketing activities. The foreign environments constitute the principal
elements of uncertainty an international marketer must cope up with in designing a marketing program and
business decision. The international marketer’s task is more complicated than that of the domestic
marketer. International marketer must deal with at least two levels of uncontrollable instead of one.

The Following are the factors that act determinants of the international marketing policies:
2.1.Geographic environment 2.5.Technological environment
2.2.Cultural environment 2.6. Natural environment
2.3.Economic environment 2.7.Regional economic integration
2.4.Political – Legal environment
2.1 Geographic environment
It is an element of the uncontrollable environment that confronts every marketer but that receives scant
attention. Climate and topography affect product development and marketing system Altitude, humidity,
and temperature extremes are climatic features that affect the uses and functions of products and
equipment. Products that perform well in temperate zones may deteriorate rapidly in tropical zones
Construction equipment USA Vs. Sahara desert.
• Within a single country there may be diverse climate
• Packaging strategy should consider

2.2 Cultural Marketing Environment

Culture is a set of traditional beliefs and values that are transmitted and shared in a given society. Culture is
also the total way of life and thinking patterns that are passed from generation to generation. Culture means
many things to many people because the concept encompasses norms, values, customs, art and mores.

Culture and its characteristics

 Culture is prescriptive.
It prescribes the kinds of behavior considered acceptable in a society. As a result, culture provides guidance
for decision making. The prescriptive characteristic of culture simplifies a consumer’s decision-making
process by limiting product choices to those which are socially acceptable. This same characteristic creates
problems for those products not in tune with the consumer’s cultural beliefs. Smoking, for instance, was
once socially acceptable behavior, but recently it has become more and more undesirable – both socially
and medically.
 Culture facilitates communication.
One useful function provided by culture is to facilitate communication. Culture usually imposes common
habits of thought and feeling among people. Thus, within a given group, culture makes it easier for people
to communicate with one another. Yet culture may also impede communication across groups due to a lack
of shared common cultural values. This is one reason why a standardized advertisement may have
difficulty communicating its message to consumers in foreign countries.

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  Culture is learned
Culture is not inherited genetically – it must be learned and acquired. Socialization or enculturation.
Socialization is the process through which we learn the norms, customs, values and roles of the society
from birth through death while, enculturation is the process by which we learn the requirements of our
surrounding culture and acquire the behaviors and values appropriate for this culture.
 Culture is subjective
People in different cultures often have different ideas about the same object. What is acceptable in one
culture may not necessarily be so in another. In this regard, culture is both unique and arbitrary. As a result,
the same phenomenon appearing in different cultures may be interpreted in very different ways.
 Culture is enduring
Because culture is shared and passed down from generation to generation, it is relatively stable and
somewhat permanent. Old habits are hard to break and peoples tend to maintain their own heritage in spite
of a continuously changing world.
 Culture is dynamic
Culture is passed on from generation to generation, but one should not assume that culture is static and
immune to change. Far from being the case, culture is constantly changing– it adapts itself to new
situations and new sources of knowledge. The dynamic aspect of culture can make some products obsolete
and can usher in new buying habits. Japanese tastes, for example, have been changing from a diet of fish
and rice to an accommodation of meat and dairy products.

2.2.1 Influence of culture on consumption

Consumption patterns, lifestyles and the priority of needs are all dictated by culture. Culture prescribes the
manner in which people satisfy their desires. Hindus and some Chinese do not consume beef at all,
believing that it is improper to eat cattle that work on farms, thus helping to provide foods such as rice and
vegetables. Not only does culture influence what is to be consumed, but it also affects what should not be
purchased. The marketing challenge is to create a product that fits the needs of a particular culture.

2.2.2 Influence of culture on thinking processes

In addition to consumption habits, thinking processes are also affected by culture. When traveling overseas,
it is virtually impossible for a person to observe foreign cultures without making reference, perhaps
unconsciously, back to personal cultural values. This phenomenon is known as the self-reference criterion
(SRC). Because of the effect of the SRC, the individual tends to be bound by his or her own cultural
assumptions. It is thus important for the traveler to recognize how perception of overseas events can be
distorted by the effects of the SRC. In order to investigate a phenomenon in another country, a researcher
or marketing manager must attempt to eliminate the SRC effect. The presence of the SRC, if not controlled,
can invalidate the results of a research study.

2.2.3 Influence of culture on communication processes

A country may be classified as either a high-context culture or a low-context culture. The context of a
culture is either high or low in terms of in-depth background information. This classification provides an
understanding of various cultural orientations and explains how communication is conveyed and perceived.
In low-context cultures society, messages are explicit and clear in the sense that actual words are used to
convey the main part of information in communication. The words and their meanings, being independent
entities, can be separated from the context in which they occur. What is important, then, is what is said, not
how it is said and not the environment within which it is said.
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Japan, France, Spain, Italy, Asia, Africa and the Middle Eastern Arab nations, in contrast, are high context
cultures. In such cultures, the communication may be indirect, and the expressive manner in which the
message is delivered becomes crucial. Because the verbal part (i.e., words) does not carry all the
information, much of it is contained in the nonverbal part of the message to be communicated.

2.2.4 Cultural universals

The failure to consider cultural universals results in a tendency to overemphasize cultural differences.
Human beings, regardless of race or religion, all have similar basic needs and it is reasonable to expect that
certain cultural traits transcend national boundaries. For example, people everywhere have a love for music
and a need for fun. Because of the universality of basic desires, some products can be marketed overseas
with little modification. The need to have fun, for instance, makes it natural for people everywhere to
accept video games.

Note that shared values do not necessarily mean shared or identical behavior. The manner of expressing
culturally universal traits still varies across countries. Music is a cultural universal, but that does not mean
that the same kind of music is acceptable everywhere. Because musical tastes are not internationally
uniform, the type of music used must be varied to appeal to a particular country. Likewise, all peoples
admire the beautiful, but cultural definitions of beauty vary greatly. In fact, beauty is not a one-dimensional
concept and modern-day cultural definitions of beauty are multidimensional. There are different categories
of beauty: classic, feminine, sensual, exotic, cute, girl-next-door, sex kitten and trendy.

Because marketing takes place within a given culture, a firm’s marketing plan assumes meaning or is
appropriate only when it is relevant to that culture. In addition, it is more important to know what a person
thinks than what that person’s language is. Because of the great differences in language and culture around
the world, American firms need to adjust their approach to solving marketing problems in different
countries. In a foreign cultural environment, the marketing plan that has worked well at home may no
longer be effective. As a result, the firm’s marketing mix may have to undergo significant adaptation and
adjustment. Effective marketing in this environment will thus mandate that the company be culturally
responsive.

2.3 Demographic Environment

Demography refers to studying human populations in terms of size, density, location, age, gender, race and
occupation. This is a very important factor to study for marketers and helps to divide the population into
market segments and target markets. This can be beneficial to a marketer as they can decide who their
product would benefit most and tailor their marketing plan to attract that segment. Demography covers
many aspects that are important to marketers including family dynamics, geographic shifts, work force
changes and levels of diversity in any given area.

Demographic factors such as size of population, population growth rate, age composition, life expectancy,
family size, spatial dispersal, occupation status, employment pattern etc. affect the demand for goods and
services. Marketing with growing population and income are growth markets. However, the decline in the
birth rates in developed countries has affected the demand for the product. A rapidly increasing population
indicates a growing demand for many products.

The world’s large and highly diverse population poses both opportunities and challenges. Thus, marketers
keep close track of demographic trends and developments in their markets, at home and abroad. They track
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 changing age and family structures, geographic population shifts, educational characteristics, diversity.
According to FDRE Population census Commission 2007 report 45% of the 73million population of
Ethiopia is in the age bracket of below 14 years old. This is an opportunity for organizations which are
targeting this age group like kindergarten, toy manufacturers.

2.4 Political and Legal Environment

2.4.1Political Environment
The political environment includes all laws, government agencies and groups that influence or limit other
organizations and individuals within a society.

Multiplicity of Political Environments

The political environment that MNCs face is a complex one because they must cope with the politics of
more than one nation. That complexity forces MNCs to consider the three different types of political
environment: foreign, domestic and international.

Although political and economic motives are two distinct components, they are often closely intertwined.
A country may use economic sanctions to make a political statement. Likewise, a political action may be
taken so as to enhance the country’s economic prospects. It is also hardly uncommon for governments as
well as companies to ignore politics for the purpose of economic interests. Developing countries often view
foreign firms and foreign capital investment with distrust and even resentment, owing primarily to a
concern over potential foreign exploitation of local natural resources.

Types of Government: on Political Systems

One way to classify governments is either parliamentary (open) or absolutist (closed).
i. Parliamentary governments consult with citizens from time to time for the purpose of learning about
opinions and preferences. Government policies are thus intended to reflect the desire of the majority
segment of a society. Most industrialized nations and all democratic nations may be classified as
parliamentary
ii. On the other hand is absolutist governments, include monarchies and dictatorships. In an absolutist
system, the ruling regime dictates government policy without considering citizens’ needs or opinions

Another way to classify governments is by the number of political parties.

1. In a two-party system, there are typically two strong parties that take turns controlling the
government, although other parties are allowed. The USA and the United Kingdom are prime examples
with different philosophies.
2. In a multi-party system, there are several political parties, none of which is strong enough to gain
control of the government. Countries operating under this system include Germany, France and Israel.
3. In a single-party system, there may be several parties, but one party is so dominant that there is little
opportunity for others to elect representatives to govern the country. For example, Egypt has operated
under single-party rule for several decades.
4. In a dominated one-party system, the dominant party does not allow any opposition, resulting in no
alternative for the people. In contrast, a single party system does allow some opposition party. The
former Soviet Union, Cuba, Libya and China are good examples of dominated one-party systems.

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 Types of Government: on Economic Systems
These systems serve to explain whether businesses are privately owned or government owned, or whether
there is a combination of private and government ownership. Based on the degree of government control of
business activity, the various economic systems can be placed along a continuum, with communism at one
end and capitalism another.

1. Communist theory holds that all resources should be owned and shared by all the people (not by profit-
seeking enterprises) for the benefit of the society. A movement toward communism is accompanied by
an increase in government interference and more control of factors of production.
In practice, it is the government that controls all productive assets and industries and, as a result, the
government determines jobs, production, price, education and just about anything else. The emphasis is on
human welfare. Because profit making is not the government’s main motive, there is a lack of incentive
for workers and managers to improve productivity.
2. The degree of government control that occurs under socialism is somewhat less than under communism.
A socialist government owns and operates the basic, major industries but leaves small businesses to
private ownership. Socialism is a matter of degree and not all socialist countries are the same.
3. Capitalism provides for a free-market system that allows business competition and freedom of choice for
both consumers and companies. A movement toward capitalism is accompanied by an increase in private
ownership. It is a market-oriented system in which individuals, motivated by private gain, are allowed to
produce goods or services for public consumption under competitive conditions. Product price is
determined by demand and supply. This system serves the needs of society by encouraging decentralized
decision making, risk taking and innovation. The results include
 Product variety,  Efficiency, and
 Product quality,  Relatively lower price

No nation operates under pure communism or pure capitalism and most countries find it necessary to
make some compromise between the two extremes. Western European countries encourage free
enterprise but intervene to provide support and subsidies for steel and farm products.
The USA is also not a perfect model of capitalism. It has support prices for many dairy and farm
products and has imposed price controls from time to time
Laissez-faire, the purest form of capitalism, is rare. Perhaps the only place that bears a close resemblance
to an ideal free-trade market is Hong Kong. It does not even have a central bank and the legal tender notes
are issued by private commercial banks.

Political risks
There are a number of political risks with which marketers must contend. Hazards based on a host
government’s actions include confiscation, expropriation, nationalization, domestication and creeping
expropriation. Such actions are more likely to be levied against foreign investments, though local firms’
properties are not totally immune.
a. Confiscation
Confiscation is the process of a government’s taking ownership of a property without compensation.
b. Expropriation
In Expropriation there is some compensation, though not necessarily just compensation. More often than
not, a company whose property is being expropriated agrees to sell its operations – not by choice but rather
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due to some explicit or implied coercion. After property has been confiscated or expropriated, it can be
either nationalized or domesticated.
c. Nationalization
Nationalization involves government ownership, and it is the government that operates the business being
taken over. In another case of nationalization, Libya’s Colonel Gadhafi’s vision of Islamic socialism led
him to nationalize all private business in 1981.
d. Domestication
In the case of domestication, foreign companies relinquish control and ownership either completely or
partially to the nationals. The result is that private entities are allowed to operate the confiscated or
expropriated property. When situations worsened in South Africa and political pressures mounted at home,
Pepsi sold its South African bottling operation to local investors,
e. Creeping Expropriation
The Overseas Private Investment Corporation (OPIC) defines creeping expropriation as “a set of actions
whose cumulative effect is to deprive investors of their fundamental rights in the investment.” Laws that
affect corporate ownership, control, profit and reinvestment (e.g., currency inconvertibility or cancellation
of import license) can be easily enacted.

Classification of Political Risks Used By Root

Four sets of political risks may be identified:
 General instability risk is related to the uncertainty about the future viability of a host country’s
political system. The Iranian revolution that overthrew the Shah is an example of this kind of risk.
 Ownership/control risk is related to the possibility that a host government might take action (e.g.,
expropriation) to restrict an investor’s ownership and control of a subsidiary in that host country.
 Operation risk proceeds from the uncertainty that a host government might constrain the investor’s
business operations in all areas, including production, marketing and finance.
 Transfer risk applies to any future acts by a host government that might constrain the ability of a
subsidiary to transfer payments, capital or profit out of the host country back to the parent firm.

Measures to minimize political risk

There are several measures that MNCs can implement in order to discourage a host country from taking
control of MNC assets.
1. Stimulation of the local economy
One defensive investment strategy calls for a company to link its business activities with the host country’s
national economic interests.
2. Employment of nationals
Frequently, foreigners make the simple but costly mistake of assuming that citizens of less developed
countries are poor by choice.
3. Sharing ownership
Instead of keeping complete ownership for itself, a company should try to share ownership with others,
especially with local companies.
4. Being civic minded
It is not sufficient that the company simply does business in a foreign country; it should also be a good
corporate citizen there.

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 5. Political neutrality
For the best long-term interests of the company, it is not wise to become involved in political disputes
among local groups or between countries.
6. Behind-the-scenes lobby
Companies as well as special interest groups have varying interests, and each party will want to make its
own opinion known.
7. Observation of political mood and reduction of exposure
Marketers should be sensitive to changes in political mood. A contingency plan should be in place.

2.4.2 Legal environment

Multiplicity of legal environments
Much like the political environment discussed in earlier, there are a multiplicity of legal environments:
domestic, foreign and international.

At their worst, laws can prohibit the marketing of a product altogether. To most business people, laws act
as an inconvenience. Club Med’s policy of rotating its international staff every six months, for example, is
hampered by the US immigration law, which makes the process of rotation both time-consuming and
costly.

There are many products that can’t be legally imported into most countries. e.g. include counterfeit(fake)
money, illicit (unlawful) drugs & espionage (spying) equipment. It is usually also illegal to import live
animals and fresh fruit unless accompanied by the required certificates.Furthermore, many products have
to be modified to conform to local laws before these products are allowed across the border.

Intellectual Property
As per the World Intellectual Property Organization (WIPO), Intellectual property (IP) is “creations of the
mind: inventions, literary and artistic works, symbols, names, images and designs used in commerce.”
The terms patent, trademark, copyright and trade secret are often used interchangeably.
Trademark: is a symbol, word or object used to identify a product made or marketed by a particular firm.
It becomes a registered trademark when the mark is accepted for registration by the Trademark Office.
Copyright: offers protection against unauthorized copying by others to an author or artist for his or her
literary, musical, dramatic and artistic works.
Patent: protects an invention of a scientific or technical nature. It is a statutory (legal) grant from the
government (the Patent Office) to an inventor in exchange for public disclosure giving the patent holder
exclusive right to the functional and design inventions patented and excluding others from using those
inventions for a certain period of time
Trade secret: refers to know-how (e.g., manufacturing methods, formulas, plans and so on) that is kept
secret within a particular business. Firm’s competitive advantage.

 Infringement occurs when there is commercial use (i.e., copying or imitating) without the owner’s
consent, with the intent of confusing or deceiving the public.
 Counterfeiting: Is the practice of unauthorized and illegal copying of a product. In essence, it involves
an infringement on a patent or trademark or both.
According to the US Lanham Act, a counterfeit trademark is a “spurious trademark which is identical with,
or substantially indistinguishable from, a registered trademark.” A true counterfeit product uses the name

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and design of the original so as to look exactly like the original. On the other hand, some counterfeiters
partially duplicate the original’s design and/or trademark in order to mislead or confuse buyers.

2.5 Economic environment

Economic conditions, economic policies and economic system are the important external factors that
constitute the economic environment of a business.
The economic conditions of a country – for example the nature of economy, the stage of development of
the economy, economic resources, the level of income, the distribution of income and assets, etc.-are the
very important determinants of business strategies.

In a developing country, the low income may be the reason for the very low demand for a product. The sale
of a product for which the demand is income –elastic naturally increases with an increase in income.
Nevertheless, the firm is unable to increase the purchasing power of the people to generate a higher
demand for its product. The only thing the firm can do is that to reduce the price of the product to increase
the demand and sales. To reduce the price of the product, there must be reduction in the cost. The reduction
in the cost of production may have to be effected to facilitate price reduction. It may be necessary even to
invent or develop a new low cost product to suit the low-income market. For example, Colgate company
designed a simple, hand-driven, inexpensive ($10) washing machine for low-income buyers in less
developed countries. National Cash Register Company also took an innovative step by developing a crank
–operated cash register that would sell at half the cost of the modern cash register and this was well
received in a number of developing countries. In generally, in countries where investment and income are
steadily and rapidly rising, business prospects are generally bright and further investments are encouraged.

The Economic policy: The economic policy of the government has a very great impact on business. Some
types or categories of business are favorably affected by government policy, some adversely affected,
while it is neutral in respect of others. For example, a restrictive import policy or a policy of protecting
home industries, may greatly help the import competing industries. On the other hand, the liberalization of
the import policy may create difficulties for such industries.
An industry that falls within the priority sector in terms of government policy may get a number of
incentives and other positive support from the government, whereas those industries, which are regarded as
inessential, may have the odds against them.

The government’s policy about the concentration of economic power may be to the core sector, the heavy
investment sector, the export sector and backward regions. For example, an industrial undertaking may be
able to take advantage of external economies by locating itself in a large city. However, the government
policy may be to discourage industrial location in large cities and constrain or persuade industries to go to
the backward areas. From the point of view of an industrial undertaking, a backward area location may
have many disadvantages. Nevertheless, the incentives available for units located in these backward areas
may compensate them for these advantages.

Economic Systems
In countries where individual goals are given primacy over collective goals, we are more likely to find free
market economic systems. In contrast, in countries where collective goals are given preeminence, the state
may have taken control over many enterprises, while markets in such countries are likely to be restricted
rather than free. More specifically, we can identify four broad types of economic system.

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A) Market Economy
In a market economic system, or a “free-market system,” communities, firms and proprietors act in self-
interest to decide how to allocate and distribute resources, what to produce and who to sell to. There is very
little government interference. The government exercises little control over resources, and it does not
interfere with important segments of the economy. Instead, regulation comes from the people and the
relationship between supply and demand.
B) Command Economy
In a command allocation system, the state has broad powers to serve the public interest. These include
deciding which products to make and how to make them. Consumers are free to spend their money on what
is available, but decisions about what is produced and what is available are made by state planners.
Because demand exceeds supply, the elements of the marketing mix are not used as strategic variables.
There is little reliance on product differentiation, advertising and promotion; distribution is handled by the
government to cut out "exploitation" by intermediaries.
The products that a country produces, the quantities which are produced and the prices at which they are
sold are all planned by the government.
C) Mixed Economy
In a mixed economy, certain sectors of the economy are left to private ownership and free market
mechanisms, while other sectors have significant state ownership and government planning. Mixed
economies are relatively common in Western Europe; although they are becoming less so. France, Italy,
and Sweden can all be classified as mixed economies. In these countries the governments intervene in
those sectors where they believe that private ownership is not in the best interests of society. For example,
Britain and Sweden both have extensive state-owned health systems that provide free universal health care
to all citizens (it is paid for through higher taxes). In both countries it is felt that government has a moral
obligation to provide for the health of its citizens.
D) A state-directed economy
A state-directed economy is one in which the state plays a significant role in directing the investment
activities of private enterprise through “industrial policy” and in otherwise regulating business activity in
accordance with national goals. Japan and South Korea are frequently cited as examples of state-directed
economies. A state-directed economy differs from a mixed economy in so far as the state does not routinely
take private enterprises into public ownership. Instead, it nurtures private enterprise but proactively directs
investments made by private firms in accordance with the goals of its industrial policy.

2.6 Natural environment

The natural environment is another important factor of the macro environment. This includes the natural
resources that a company uses as inputs and affects their marketing activities. The concern in this area is
the increased pollution, shortages of raw materials and increased governmental intervention. As raw
materials become increasingly scarcer, the ability to create a company’s product gets much harder. Also,
pollution can go as far as negatively affecting a company’s reputation if they are known for damaging the
environment. The last concern, government intervention can make it increasingly harder for a company to
fulfill their goals as requirements get more stringent. Marketers should be aware of several trends in the
natural environment.

The first involves growing shortages of raw materials. Air and water may seem to be infinite resources, but
some group see long-run dangers. Air pollution chokes many of the world’s large cities and water

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shortages are already a big problem in some parts of the world. Renewable resources, such as forests and
food, also have to be used wisely. Nonrenewable resources, such as oil, coal and various minerals, pose a
serious problem. Firms making products that require these scarce resources face large cost increases, even
if the materials do remain available.

A second environmental trend is increased pollution. Industry will almost always damage the quality of the
natural environment. Consider the disposal of chemical and nuclear wastes; the dangerous mercury levels
in the ocean; the quantity of chemical pollutants in the soil and food supply; and the littering of the
environment with non-biodegradable bottles, plastics and other packaging materials.

2.7 Technological environment

The technological environment is perhaps one of the fastest changing factors in the macro environment.
This includes all developments from antibiotics and surgery to nuclear missiles and chemical weapons to
automobiles and credit cards. As these markets develop it can create new markets and new uses for
products. It also requires a company to stay ahead of others and update their own technology as it becomes
outdated. They must stay informed of trends so they can be part of the next big thing, rather than becoming
outdated and suffering the consequences financially.

The technological environment is perhaps the most dramatic force now shaping our destiny. Technology
has released such wonders as antibiotics, organ transplants, computers and the Internet. It also has released
such horrors as nuclear missiles, chemical weapons and assault rifles. It has released such mixed blessing
as the automobile, television and credit cards.

New technologies create new markets and opportunities. However, every new technology replaces an older
technology. Transistors hurt the vacuum-tube industry, xerography hurt the carbon-paper business, the auto
hurt the railroads and compact disks hurt phonograph records. When old industries fought or ignored new
technologies, their businesses declined. Thus, marketers should watch the technological environment
closely. Companies that do not keep up with technological change soon will find their products outdated.
And they will miss new product and market opportunities.

2.8 Economic cooperation

Economic integration has been one of the main economic developments affecting world markets since
World War II. The movement towards free trade was accompanied by a parallel movement towards the
formation of regional trading blocs centered on the Western Europe, North and South America and East
Asia.

By regional economic integration we mean agreements among countries in a geographic region to reduce,
and ultimately remove, tariff and nontariff barriers to the free flow of goods, services and factors of
production between each other. These economic integration efforts are driving the world into trading blocs.
The European Union (EU) is the best known and most successful regional trading bloc.

Worldwide free trade is ideal but cannot be attained. The theory of second best suggests that the optimum
policy is to have economic cooperation on a smaller scale. In an attempt to reduce trade barriers and
improve trade many countries within the same geographic area often join together to establish various
forms of economic cooperation.
Benefits of Economic Integration
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 1. Faster economic growth
2. Obtaining Countervailing Power
3. Increase in Competitiveness
4. Affordability of an Industry

Trade theorists have identified five levels of Economic cooperation. They are:
1. Free Trade Area
In a free trade area, the countries involved eliminate duties among themselves, while maintaining
separately their own tariffs against outsiders. Free trade areas include the NAFTA (North American Free
Trade Agreement), the EFTA (European Free Trade Association) and the now defunct LAFTA (Latin-
American Free Trade Association). The purpose of a free trade area is to facilitate trade among member
nations. The problem with this kind of arrangement is the lack of coordination of tariffs against the
nonmembers, enabling nonmembers to direct their exported products to enter the free trade area at the point
of lowest external tariffs.
2. Customs Union
A customs union is an extension of the free trade area in the sense that member countries must also agree
on a common schedule of identical tariff rates. In effect, the objective of the customs union is to harmonize
trade regulations and to establish common barriers against outsiders.
Uniform tariffs and a common commercial policy against nonmembers are necessary to prevent them from
taking advantage of the situation by shipping goods initially to a member country that has the lowest joint
boundaries.
3. Common Market
A common market is a higher and more complex level of economic integration than either a free trade area
or a customs union. In a common market, countries remove all customs and other restrictions on the
movement of the factors of production (such as services, raw materials, labor and capital) among the
members of the common market. As a result, business laws and labor laws are standardized to ensure
undistorted competition.
4. Economic & Monetary Union
Cooperation among countries increases even more with an economic and monetary union (EMU). Some
authorities prefer to distinguish a monetary union from an economic union. In essence, monetary union
means one money (i.e., a single currency). The European Commission’s One Market, One Money report
defines an economic union as a single market for goods, services, capital and labor, complemented by
common policies and coordination in several economic and structural areas.
5. Political Union
A political union is the ultimate type of regional cooperation because it involves the integration of both
economic and political policies. With France and Germany leading the way, the EU has been moving
toward social, political and economic integration. The EU’s goal is to form a political union similar to the
fifty states of the USA.

Economic and Marketing Implications

Marketers must pay attention to the effects of regional economic integration or cooperation. Because the
competitive environment may change drastically over time. As in the case of the EU, although EU member
countries still maintain their national identities, national borders are no longer trade barriers. Marketers
must treat the EU as a single market rather than as numerous separate and fragmented markets.

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