Fundamentals of International Business

Assignment 1 Nov-19

1. Explain how the consequences of regional trading blocs enhance the product life cycle of
International investments.
A regional trade bloc is formed between the countries in the form of group or co-operative union
within a specified geographical location. They facilitate a layer of protection to its member
countries against the imports by the non-members. These protections would vary from
eliminating tariffs on particular goods to removal of all the trade barriers, accordingly the trade
blocs are classifies as free trade area, custom union, common markets, & economic union.
When all the countries pertaining to a specific geographical area, decide on reducing or
completely eliminating the tariffs on the desired goods and services, the Preferential Trade
Area comes into existence. When the member countries accept to completely remove the trade
barriers on all the goods that are being imported from the member countries, a Free Trade Area
is formed. .
E.g.: For South East Asia we have ASEAN (Association of South East Asian Nations).
A union which completely eliminates the tariff barriers and a common tariff for non-
members is being decided by a Custom Union. All the members of the Custom Union, trade
with the third parties as single entity. .
E.g.: CARICOM (Caribbean Community and Common Market) established in 1973 to eliminate
customs duties & import restrictions among member nations
A Common Market is based up on abolishment of all the restrictions and barriers or
charge low rates of tariffs on trade among member nations, uniform commercial policy of
barriers and restrictions jointly with regard to the trade with the non-member countries, allow
free movement of human resources and capital among the member countries. .
E.g.: MERCOSUR (Southern Cone Market), East African Common Market, and West African
Common market.
An Economic union consists of all the characteristics of a common market and in
addition it aims to achieve uniform monetary policy and fiscal policy among the member
countries.
E.g.: European Union (EU), the countries of the EU coordinate their respective economic
policies, laws and regulations so they can work together to address economic and financial
issues. The EU also has a common currency, the Euro, used by 19 EU members.
Each of the above mentioned kinds of economic integration are superior to the other
depending upon their degree of facilities provided by each in a short

Economic union > Common Market > Customs Union > Free Trade

Every product that comes into the market starts with genesis at a particular geographical location
and over a period of time it dies out, which is not the end of the story of a product, which has
terminated in one part might have taken birth/ in the introductory phase in the other part of the
world. So before we look into how the economic integration / trade blocs help out a product to

1 By: Naveen Kenchanagoudar_500066031

MBA-LSCM 2018-20
Fundamentals of International Business
Assignment 1 Nov-19

remain in the race let’s look into the series of stages of a product and the dynamics involved in
each of those stages.
Stages
Introductory
Growth Phase Maturity Phase Decline
Phase
Attributes/Misc Attr.
Expenditure High Significant Price cuttings High
Medium to
Financial Losses High Towards Minimization High
High
Conventional
Young, Better
Customers Customers start Stable Market share Change in tastes
Educated.
buying
Competition None Significant Intense Intense
Done
Ads. Through
Awareness Extensively, by Promotions -
all medium
advertisement
Make product attractive
as per new market by
Others/Misc - - adding extra features or -
new use of the product

After the phase of Decline comes the Death phase, if the product is not terminated maintenance
of a falling product is waste of time, effort, & resources. As said earlier end of the product could
be only in a particular country elsewhere the same product could be in a different phase.

Introductory Phase Growth Phase Maturity Phase Decline Death

During a particular stage of a product when the competition is high the product is imitated by
local suppliers as well and the local competitors might even improve upon the product and start
exporting it to the originating firm’s own country here the foreign imitators (i.e. Local
competitors) might enjoy lower labor and other local production costs and spend nothing on
new product development. However, the foreign exporter has to pay transport costs & import
duties to tackle this loss; Direct Foreign Investment (DFI) in the less developed economies by
firms from richer nations was the only way foreign exporters could compete against locally
based low-cost imitating business. But this theory didn’t last long due to following reasons

 Short PLC due to innovations in the product.

 Inefficient distribution by the local firms, who could produce in lesser cost in
comparison with foreign firms.
 No production occurs in economically advanced nations.
 Contract manufacturing of goods in lieu of DFI. (Bennett, 2006)
To overcome these short comes of DFI in the lifecycle of a product and to extend the duration of
each stage, which ultimately extend the life of a product in the market the countries entered into
trade agreements (Trade Blocs), which not only eliminate the trade barriers( Economical,
Ethical, Technological, Cultural) it also help in following way:

2 By: Naveen Kenchanagoudar_500066031

MBA-LSCM 2018-20
 Fundamentals of International Business
Assignment 1 Nov-19

 The economies of the members of the Blocs avail the benefits of Foreign Direct Investment
 As the products are manufactured in bulk locally, the costs are lowered and the markets avail
the benefits of Economies of scale.
 Manufacturers from different member countries are brought at one place, thus leading to
greater competition which enables to increase the efficiency of the member countries.
 The elimination of tariffs, leads to reduction of cost. The low costs results in more demand for
the goods by the consumers.
 Due to all the above advantages of increasing demand, increasing consumption, reduced cost
and increased production makes the market efficient. (Regional Trading Blocs - International
Business Management)

So to conclude the trade blocs certainly enhance the product life cycle as it increases the market
share and economies of scale and scope of a product. In addition the reach of the product in the
market also expands. It’ll be a win-win situation for all.

Bibliography
Bennett, R. (2006). International Business. New Delhi: Pearson Education.

Rao, P. S. (2015). Internationa Business. Mumbai: Himalayan Publishing House Pvt. Ltd.

Regional Trading Blocs - International Business Management. (n.d.). Retrieved Nov 09, 2019, from
Wisdom Jobs: https://www.wisdomjobs.com/e-university/international-business-management-tutorial-
2652/regional-trading-blocs-26887.html

3 By: Naveen Kenchanagoudar_500066031

MBA-LSCM 2018-20