Opportunities PROVIDED BY Trade Blocks To Businesses Material Economics Essay


I am a global business specialist and presenting a written report on the opportunities that a business in the textile industry in THE UNITED STATES can be benefited from participating in trade with a trade block.

It is europe and UNITED STATES Free Trade Area that I shall focus on as it is of most interest in this survey and the options of starting a textile herb in the European Union the greatest trade block.


To gather the information used through this report I described my very own views as international business advisor and four academic books whose authors provide different views on why and exactly how companies should be involved in phrase trade and the possible difficulties that they may face in doing so or not.


Trade allows countries to utilize their national tool more effectively through specialty area. Regional economic integration is the growing interdependence that results when several countries within a geographic area and form an alliance aimed at reducing obstacles to operate and investment. The go up of regional trade blocks that are in geographic areas consisting of two or more countries who've agreed to go after financial integration by minimizing barriers to the cross border movement of products, services, capital and in more complex states has influenced world trade greatly

It is of great importance that people are strategically placed as a company to reap the benefits of this. To begin with I will identify what free trade is, the types of free trade blocks, the worlds leading trade blocks, discus the advantages and down sides they show a country and a business and then give my advice.


Free trade is the comparative absence of constraints to the flow of goods and services between countries.

Trade is the central of the businesses existence it is advisable to consider international trade that is the exchange of products and services across national boarders especially that is natural for a company to want to increase; typically through exporting and importing, International Business (2008 Tamer C. S, Knight G and Riesenberger J. R)

Classical ideas of trade

World trade has come been with us for a long period at has developed over time at different stages of record, by looking at a few of the theories were much more in a position to understand the word trade taking place right now.

The Mercantilist View; A belief that national success is the result of positive balance of trade, achieved by increasing exports and minimizing imports, emerged in the 1600 (protectionism).

Absolute Advantage principle; A country benefits by producing only those products in which it comes with an absolute gain or can produce using fewer resources than a different country : by economist Adam Smith 1776, An inquiry in to the Nature and factors behind wealth of nations

Comparative advantage basic principle; it could be beneficial for two countries to operate without barriers as long as one is more efficient at producing good or services needed by the other. What maters is not the absolute cost of creation, but instead the reflective efficiency with which a country can produce the product, David Ricardo 1817; the principle of political overall economy and taxation.

Factor propositions theory; identifies how abundant development factor bring about national advantages for occasion Brazil has numerous workers in most the various companies.

New trade theory; Paul Krugwa; 1970's argues that increasing profits to size especially economies of size are an important factor in some market sectors for superior national performance. Some business do well best as their level of production increases consider the air travel industry that makes more earnings by producing many airlines.

In this theory a variety of products and services are consumed better value.

The most refereed to theories today are those of comparative gain and new trade theory.

Because of international trade, some region governments have set up protectionist options against foreign contests to safeguard their own businesses. That is necessary nonetheless it reduces international trade and its benefits of aiding the countries businesses to become successful global rivals even ask retaliation, some of these measures are;

Tariffs or transfer duties; a demand imposed on the price of stepping into a country. This escalates the price of imported goods it also boosts demand on home produced good, generates government revenue.

Subsidies; is a financial support provided by the federal government out of taxation. The initial cost of creating a certain goods and services is reduced credited to federal support there for minimizing its selling price. These also encourage exports of local products and services.

Quotas; are a permitted or prescribed amount or a value of a product; this controls the level of imports and allows these to find their own price. This can help to reduce the influx of certain products in to the country.

Non- tariff barriers; take the proper execution of discriminatory administrative tactics, deliberately channeling federal deals to home companies even though their tenders are not competitors

Local content requirements; require a manufacturer include a minimum ratio of added value that is from local resources, this discourages imports of raw materials, parts, components and materials thereby lowering sourcing options available to companies.

Regulations and technical standards; include basic safety, health or complex laws; labeling requirements. These may hold off or prevent the entrance of imported products and reduce the level of available products, leading to higher costs to imports and buyers

Types of Free Trade

FREE TADE Arrangement; A formal agreement between several countries to reduce or eliminate tariffs, quotas, and obstacles to trade in products and services

Free trade area; A level of regional integration in which member countries consent to eliminate tariffs and other obstacles to trade in products and services within the block

Customs union is level of regional integration in which the member countries consent to conform common tariff and non-tariff obstacles on imports from non-member countries.

Common market; A stage of local integration in which trade barriers are reduced or removed, common external barriers are founded and product and services. Factors of production are allowed to move openly among member countries

Economic union; A stage of regional integration in which member countries enjoy all the features of first stages but also make an effort to have common fiscal and economic policies.

The level of integration on laws and regulations and regulation rises significantly from free trade contract to economical union take notice of the two diagrams below


More and more countries have become part of a trade block or trade contract. There roughly 200 economical integration agreements about the world;

The EU (European union) were only available in 1957 the most advanced of these, consists of 27 countries in European countries. The European union increased market gain access to, improved trade guidelines and harmonized expectations among people.

The EU looks for to harmonize customer laws and regulations amidst member countries and prohibits all contracts and practices which may prevent trade.

The North American Free Trade Agreement (NAFTA); launched in 1994 the block includes Canada, Mexico, and the United States. NAFTA reaches the free trade area level of local integration largely eliminating tariffs and most non tariff obstacles for products and services in the stop.

America and Canada would take advantage of the low labour cost of Mexico and them from overseas direct investment as large market segments of the other two. Since its formation NAFTA countries have grown to be more involved and a strong productivity expansion.

Others include; EL Mercado Comun del Sur (MERCOSUR), The Caribbean Community (CARICOM) and Comunidad (CAN) in south America. In Asia Pacific; The Connection of Southeast Asian Countries (ASEAN), Asia Pacific Economic Cooperation (APEC) and Australia and New Zealand Better Economic Relations Arrangement are leading blocks

The Southern Development Community (SADC), Economic Community of Western world African Claims (ECOWAS) and Gulf Assistance Council (GCC) economic blocs in Africa and the center East have experienced little success.

Depending on weather you are within or with no trade stop their advantages and disadvantages to businesses.

Economic Development seventh model Todaro M, P. 2000

Disadvantages of Trade Economic Blocks

New protectionist measures against exports from developing countries in conditions of expectations of acceptance of created and prepared goods

Oligopoly control of factors of production and commodity markets in developed countries combined with increased competition for resources of sources of resource.

Some countries with high labour costs in trade blocks lose jobs to lessen labour cost countries due the benefits it offers business organizations.

Advantages of Trade Economic Blocks

Promotes competition, advanced learning resource allocation, economies of level and cost of creation lowered

Increased pressure to be efficient, product improvement and technological change

Accelerates economy grows up, raises earnings and promotes greater saving and investment.

Attracts foreign capital and competence, generating needed foreign exchange

Promotes more equal access to scarce resources.

Why countries may pursue regional trade (International Business 2008 Tamer C. S, Knight G and Riesenberger J. R)

Expand the market size of their establishments o increase revenues

Achieve economies of range and enhanced productivity

Attract direct investment from outside the block

Acquire more powerful defensive and political posture

Drawbacks and moral dilemmas of local integration are;

There is reduced global trade due to the fact that countries within a trade block have a tendency to trade more with themselves that with countries outside the block

Another serious consequence is the loss of international identification and sacrifice of autonomy as seen from the countries within the Western european Union

Failure of small or vulnerable competition because of the bigger businesses that pays higher wages and also have economies of scale.

There reason that businesses may want to participate a trade block International Business 2009 Hill C W. L

Consumers and companies can more quickly choose the products they need because of the large size of the stop.

The prices of brought in products have a tendency to be lower in a trade block than domestically produced products because of usage of world scale supplies that push prices down, mainly from increased competition or development takes place in less expensive countries.

Lower cost of imports help reduce the expenses of firms, thus raising their income (which might be passed on to workers in the form of higher salary). In addition they reduce the expenses of consumers, in doing so increasing their living expectations.

How company management must offer with Regional integration International Business 2008 Tamer C. S, Knight G and Riesenberger J. R;

Internationalization by organizations inside the block

The eradication of trade and investment barriers present new opportunities to source insight goods from foreign products within the stop. The firm can make new sales and increase revenue.

Rationalization of operations

Instead of enjoying the stop as a collection of differing countries, organizations begin to view the block as a unified overall, rather than individual countries.

Rationalization is the process of restructuring and consolidating company procedures. It reduces redundancy, cost and increase efficiency in businesses.

Mergers and Acquisitions

The merger several firms creates a fresh company that produces something on a much larger level, mergers and acquisitions end result a whole lot in trade blocks.

They increase R&D activities and pool grater capital financing for major jobs, such as construction of plants and large size industrial equipment.

Regional products and marketing strategy

Companies can standardize their products and services, the reason is that it is less costly to make and sell a few product models than several. Due to local integration member countries tend to harmonize product criteria and commercial legislation and eliminate trade barriers and transport issues.

Internationalization by companies from beyond your block

Multi-country market segments are appealing to firms outside the block; they avoid exporting as entry strategy because economic blocks erect trade obstacles against imports from beyond your box. To beat this, companies set up a foreign immediate investment. By building a production

Facility, marketing subsidiary or local headquarters they access the complete trade stop and benefits loved by local businesses within the stop.

Collaborative ventures

Regional integration creates opportunities for assistance among firms located inside their own stop. The eradication of trade and investment obstacles in the EU allowed Airbus to move aeroplanes parts, capital and labour among the member countries from one country to some other. Outsider companies enter into the block by coming into joint projects and other collaborative agreements with companies founded within the block.

The GATT (Standard Arrangement on Tariffs and Trade) /WTO (World trade Business)

Some important global institutions have been intended to help boost the development of business activity beyond countrywide boarders. They are the General Agreement on Tariffs and Trade (GATT) and its own successor the World trade Corporation (WTO). It's responsible for making certain member countries stick to the policies agreed upon, 97% of the world trade comes from WTO participants.

WTO has marketed lowering obstacles to mix boarder trade and investment. Average tariff have fallen because the 1950's about 4% in 2001 the WTO member countries further decided to reduce tariffs on goods, services and agricultural produces lowering barriers to cross boarder investment.

With the encouragement from the actions of such companies our textile company will see it better to trade on a global level. Typically businesses commence with exporting and get to FDI (international Immediate Investment), the most sophisticated international activity. Internationalization requires rational examination or deliberate planning on the part of managers usually a progressive procedure.

Opportunities for our textile managers

In Europe before the 1992, the large French and Italian marketplaces were most secured; these markets are actually much more available to foreign competition since the development of the EU.

It is advisable to set up a subsidiary in European countries now lest we run the chance to be shut from the European union by non-tariff barriers

The lower costs to do business in one market instead of 27 national markets regarding the EU or 3 national markets(NAFTA)

Significant cost economies, free activity of goods across boarders, harmonized product requirements, simplified duty regimes by centralization of production in EU and North American markets when you are in one location optimum local factors and cost.

Countries that cannot produce particular types of services or products such as Iceland producing oranges have the ability to import from the ones that can even when a country can produce that product but if another can achieve this at a lower cost it is more rational with the country to concentrate on producing other products and importing that on, this is actually the theory of comparative advantage.

However in a free trade block transfer duty and other protectionist actions may be reduced even removed or harmonized making it cheaper to sell products in such countries within the block

Risks for our textile managers

The business environment within each grouping is very competitive, scheduled to increased price competition; to make it through these, we should take good thing about the opportunities provided by the solitary market to rationalize production and keep your charges down. The European union has a high cost structure restricting many firms potential to compete internationally with UNITED STATES and Asian firms

EU has seriously attemptedto reduce these limitations by rationalizing creation hence becoming more competitive intimidating non-European competitors. Firms trading beyond your trading areas can be shut out of the single market by the creation of the "trade fortress" especially the European union. It may raise obstacles to imports and investment in certain politically delicate areas. Especially in market sectors as energy; the solution would be for firms outside the trade stop such as our textile company would be to set up our very own EU functions.

An example are the large US and Japanese companies that are also establishing production and syndication facilities in the European union, many of them in the UK in order to have a foothold in the sole Western market.

The European union competition commission wants to reduce the effects of monopolies from being created, will leverage concessions from businesses as a precondition for allowing proposed mergers and acquisitions to be allowed.


By understanding the significant opportunities offered by free trade above, considering at the world leading trade blocks; the European Union and the North American Free Trade Area, it is logical that the textile company should go ahead and find a subsidiary place within europe.

However I recommend the move should be organized carefully and done with caution for this to achieve success. The firm should be able to abide by the laws and regulations of the trade block. A thorough evaluation of europe countries to select a suitable one, I suggest the United Kingdom


International business, strategy, management and new realities Cavusigil Knight Riesenber

Progress Cavusigil has authored over the 160 refereed journal articles and three chosen books including doing business in emerging markets.

Garry professor nighttime has intensive experience international business in the private sector he has done a research emphasizes regional integration, international business strategy.

Seth is a corporate vice chief executive and the chief commercial officer of Mankind corporation he previously did the trick for 'Born Global' a technology branding communications agency

International business rivalling in the Global market place seventh edition Charles W. L. Hill Charles is the Hughes M. Dark teacher at the school of Washington. He has posted 40 articles in academic journals wrote on the consulting basis for several countries.

Economic Development Michael P Todaro seventh release Michael a teacher of business at New York University or college: he targets the current economic climate of development in the third world.

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