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CENTRAL PHILIPPINE UNIVERSITY

COLLEGE OF BUSINESS AND ACCOUNTANCY
Iloilo City, Philippines 5000
Tel. No. (63-33) 3307262 / 3307264
Website: http://www.cpu.edu.ph | Email: businessad@cpu.edu.ph
Academic Year 2024-2025
Second Semester

BUS 4106 – INTERNATIONAL BUSINESS & TRADE

LECTURE NOTES
Module 8 – Economic Integration and Emerging Markets
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Learning Objectives:

L01. Explain the levels of economic integration, such as free trade areas, customs unions, and
common markets.
L02. Assess the advantages and challenges of economic integration for businesses and
countries.
L03. Identify opportunities and risks associated with emerging markets.
L04. Analyze the impact of global economic trends, such as shifting trade patterns and digital
transformation, on business strategies.
L05. Develop strategies for successfully entering and operating in emerging markets.

Levels of Economic Integration

Economic integration is the process by which countries reduce trade barriers and coordinate
policies to enhance economic cooperation.

https://transportgeography.org/contents/chapter7/globalization-international-trade/economic-integration-levels/

1. Free Trade Area (FTA)

The most basic form where member countries eliminate tariffs on goods traded among
themselves, but maintain separate external trade policies with non-member countries.

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2. Customs Union
Builds upon an FTA by adding a common external tariff, meaning member countries apply the
same tariffs on imports from outside the union.

3. Common Market
Further integrates by allowing the free movement of not only goods but also services, labor, and
capital across member countries.

4. Economic Union
The most comprehensive level, where member countries not only have a common market but
also coordinate economic policies like fiscal and monetary policies, potentially leading to a
single currency.

5. Political union
Represents the potentially most advanced form of integration with a common government and
where the sovereignty of a member country is significantly reduced. Only found within nation-
states, such as federations where a central government and regions (provinces, states, etc.)
have a level of autonomy over well-defined matters such as education.
Key points to remember:
1. Progression is not always linear. Countries may choose to skip stages or move back and
forth depending on political and economic circumstances.
2. Regional integration can also be categorized as "deepening" (further integration within
existing members) or "widening" (adding new countries to the bloc).

Examples:
➢ United States-Mexico-Canada Agreement (USMCA), replacing NAFTA: Considered a
Free Trade Area
➢ European Union (EU): Represents a full Economic Union with a common currency
(Euro)
➢ Mercosur (Southern Common Market): Considered a Customs Union

The Benefits of Regional Integration

1. Creating a larger pool of consumers with growing incomes and similar cultures, tastes, and
social values.
2. Encouraging economies of scale in production, increasing the region’s level of global
competitiveness, and enhancing economic growth through investment flows.
3. Freeing the flow of capital, labor, and technology to the most productive areas in the region.
4. Increasing cooperation, peace, and security among countries in the region.
5. Encouraging member states to enhance their level of social welfare to match that of the most
progressive states.

The Costs of Regional Integration

1. Undermining the most -favored-nation status rule (the lowest tariff applicable to one member
must be extended to all members), an essential principle of the WTO.
2. Imposing laws and regulations that are uniform and that at times do not take account of
national economic, cultural, and social differences.
3. Eliminating jobs and increasing unemployment in protected industries.
4. Losing sovereignty, national independence, and identity.

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5. Reducing the powers of the national government.

6. Increasing the probability of rising crime associated with illegal drugs and terrorism because
of the ease of cross-border labor movements.

EMERGING MARKETS

An emerging market is one with per-capita income in the low to middle range as measured by
the World Bank.

Emerging markets are economies experiencing rapid growth and industrialization, transitioning
from developing to developed status. They are characterized by large populations, increasing
urbanization, and rising middle classes, making them attractive for business expansion.

Characteristics include high growth rates, large consumer bases, and structural weaknesses
like inadequate infrastructure (Strategies That Fit Emerging Markets from Harvard Business
Review).

Opportunities:
1. Market Size and Growth
These markets offer vast consumer bases due to large populations and growing disposable
incomes. For example, India, with over 1.3 billion people, has a rapidly expanding middle class
(Emerging Market Outlook for 2025 from Duke's Fuqua School of Business).

2. Cost Advantages
Lower labor costs make them attractive for manufacturing and outsourcing. China’s role as a
global manufacturing hub, despite rising wages, is a case in point (Opportunities In Emerging
Markets For Best Global Expansion from Serviap Group).

3. Innovation and Entrepreneurship

Less bureaucratic hurdles foster innovation. Bangalore, known as the "Silicon Valley of India," is
a hub for IT startups (The key business opportunities in the emerging economies from IMD).

4. Resource Availability
Many emerging markets are rich in natural resources, offering opportunities in mining,
agriculture, and energy. Brazil’s production of soybeans and iron ore exemplifies this (Emerging
Markets: Opportunities, Challenges, Growth, and Innovation from International Board Group).

Challenges:
1. Political and Economic Instability
Unstable governments can lead to policy changes affecting business operations. Frequent
government changes in some African countries illustrate this risk (Council Post: Challenges To
Growth In Emerging Economies from Forbes).

2. Infrastructure Gaps
Inadequate transportation, energy, and communication systems hinder business activities. Poor
road networks in parts of Africa increase logistics costs (Emerging Markets Network | OECD).

3. Regulatory Environment
Complex, inconsistent, or corrupt systems pose challenges. Bureaucratic hurdles and
corruption, as seen in some markets, can delay operations (Challenges To Growth In Emerging
Economies: Solutions And Strategies For Market Entry from Forbes).

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4. Currency Risks
Volatile exchange rates impact profitability, especially for companies with local currency
revenues. The Turkish Lira’s depreciation, affecting businesses with dollar-denominated debts,
is a recent example from Miles to Go: The Future of Emerging Markets from IMF F&D.

5. Cultural and Social Differences: Differences in business practices and consumer behavior
require adaptation. In China, building relationships (guanxi) is crucial, as noted in Strategies
That Fit Emerging Markets from Harvard Business Review.

Global Trends and Business Impact

Strategies for Entering and Operating in Emerging Markets

Successfully entering emerging markets requires tailored strategies that address their unique
challenges and opportunities.

Recommended Strategies (from Six Winning Go-to-Market Strategies for Emerging Economies from BCG)

1. Adopt a Segmented Approach

Tailor go-to-market (GTM) strategies for different consumer profiles, geographies, and products.

For example, a cosmetics company in Southeast Asia offers premium skin care in hypermarkets
and affordable options in convenience stores, while an Indian food manufacturer
microsegmented over 700 cities, achieving 90% of revenue through retail sales via e-commerce
partnerships like Amazon and BigBasket.

2. Manage Channel Partners Effectively

Establish clear criteria for channel partners based on size, ROI, and infrastructure. Link up to
50% of incentives to sales targets, product mix, and market expansion, and absorb channel
partner sales team costs. For instance, reducing 1,000 to less than 500 channel partners
increased revenue and focused on single-tier distribution for 80% of sales.

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3. Focus on In-store Execution

Segment retailers by type and size, build retailer databases, and invest in technology for billing.
Implement “perfect store” programs, especially in India, Indonesia, Philippines, and Thailand. An
FMCG company in India tags 10% of retailers as A-class, accounting for 30% of sales, 50% of
premium products, and over 70% of new product introductions.

4. Capitalize on Fast-Growing Alternate Channels

Leverage quick commerce platforms like Blinkit, Swiggy Instamart, and Zepto in India, offering
10-minute delivery, and B2B e-commerce. Adapt product portfolios for impulse and binge
consumption, such as a snack foods company in India deriving larger revenue shares through
quick commerce with multi-occasion, multipacks, and combo packs.

5. Rethink Sales Organization

Tailor the mix of internal and external sales teams, augment with influencer management and
trade marketing, and balance physical and digital touchpoints. Track performance with KPIs. For
example, an electrical company in India has a 100-member influencer team, while a Southeast
Asia company serves low-volume stores twice monthly, once physically and once virtually.

6. Leverage Digital Across the Value Chain

Use mobile apps for sales reps for day planning, orders, and performance data; dashboards for
leaders; and apps for channel partners for targets, offers, and orders. Utilize GenAI for virtual
reps, coaching, and insights. An FMCG company in India increased productivity by over 15%
with a digital suite, costing as low as $7/user/month.

Prepared by: HERMELY A. JALANDO-ON, DM