BUSINESS TO BUSINESS MARKETING

Business to Business Marketing



Business to Business Marketing

Question 1:

Contrary to popular belief, trading blocs are not a completely new phenomenon. Their roots can easily be traced back to the mercantilist trading systems that the Western European powers operated in the 16th century. However, the growth in the number and importance of regional trading blocs is one of the most characteristic developments of recent years. During the last decade, the move to form regional trading blocs has intensified, as demonstrated by the fact that of the 194 trade agreements notified to the General Agreement on Trade and Tariffs and the World Trade Organization (GATT/WTO) at the beginning of 1999, 87 of the agreements were reached since 1990(Golder 2000).

Furthermore, there has been a notable change in the reasons behind the formation of trading blocs. This change can be characterized as a move from “closed regionalism” to a more open model. Even during the 1960s and 1970s, most of the trading blocks formed were based on a model of import-substitution and regional agreements with high barriers to external trade. On the other hand, newer agreements are generally more “outward-looking” and committed to increasing international trade rather than restricting it.

Many of these newer trading blocs are formed with the underlying idea not only of taking advantage of the economic benefits of being a member of a trading bloc, but of increasing the international political and economic leverage of those nations that are members of the trading bloc. In particular, the European Union was formed with both of these goals in mind(Ghemawat 2004).

The definition of a trading bloc varies widely. However, one definition that encompasses the main attributes of trading blocs and touches on the reasons that countries may have for forming such an organization is that given by the United States National Policy Association. According to this definition, a trading bloc is defined by four characteristics, it:

participates in a special trade relationship established by a formal agreement that promotes and facilitates trade within that group of countries in preference to trade with outside nations by discriminating against nonmembers;

has attained or has as a stated goal the deepening of trade liberalization or integration with the objective of establishing a free trade area, customs union, or common market;

strives to reach common positions in negotiations with third countries, with other trade blocs, or in multilateral forums; and

attempts to coordinate national economic policies to minimize disruption to intrabloc economic transactions(Farrell 2004).

Trading blocs are created because according to the theory of comparative advantage, countries should specialize in producing those goods in which they have a comparative advantage; that is, those goods that they have a lower opportunity cost of production than other nations. By specializing in the production of these goods, a group of nations as a whole can produce, and therefore consume, a greater quantity of each product. However, as countries become more specialized in the production of goods, it becomes necessary to trade with countries that need these goods or that have resources that ...