International Business and the Regions

International Business and the Regions

In the era of globalization, the primary scope of agencies, institutions and players across the world seems the creation of a free international market place. The efforts so far made have however been insufficient to create such a market place, but impressive successes were observed in terms of the creation of regional market places. In other words, the modern day economic society has managed to support and concretize its efforts in the direction of regional economic development.

Regional economic integration

Regional economic development is virtually understood as a context in which countries in the same global region direct their endeavors in the sense of creating an economically integrated region. They virtually focus on free trade and migration of goods, people, commodities, technologies and capitals and they strive to reduce the barriers between the respective economies. Jacques Pelkmans (2006) defines economic integration as "the elimination of economic frontiers between two or more economies. In turn, an economic frontier is any demarcation over which actual and potential mobilities of goods, services and production factors, as well as communication flows, are relatively low. On both sides of an economic frontier, the determination of prices and quality of goods, services and factors is influenced only marginally by the flows over the frontier."

The primary benefits of regional economic integration refer to the stimulation of trade operations between the countries in the agreement, the creation of greater consensus, the support of enhanced political cooperation and an increased international competition (Xing). In terms of the actual means in which regional economic integration can be created, these refer to the following:

The creation of an economic union through the harmonization of economic principles

The creation of the common market through factor mobility

The creation of custom unions through common external trade policies, or The creation of free trade areas through the signing of free trade agreements between regional states (Czinkota and Ronkainen, 2007).

4. Regional economic integration in North America

The years since 1990 have been marked by intense efforts of regional economic integration, the most representative ones being obvious within North America, where the economic agents and the governments both cooperated in the creation of free trade agreements. The most important of these agreements is the NAFTA -- North American Free Trade Agreement, signed in1994 by the United States, Canada and Mexico. The agreement has been assessed with both praises as well as criticism, to hereby constitute a major part in the analysis.

The first step in appraising the regional economic integration between the United States, Canada and Mexico is that of looking at the trade and investments in the region in order to identify the levels and types of integration.

a) Trade

Immediately after the NAFTA was signed, the three countries commenced to eliminate their barriers. In 1994 for instance, Mexico eliminated 50 per cent of its barriers, to eventually come in 2003 to eliminate all of them. In terms of trade, the agreement generated the following outcomes:

Total trade in goods between the three states has increased from $297 billion in 1993 to $883 billion in 2006, revealing a 198 per cent increase

The exports of United States products into Canada and Mexico increased from $142 billion in 1993 to $364 billion in 2006 -- a 157 per cent increase

The imports Canadian and Mexican products into the United States increased from $151 billion in 1993 to $500.7 billion in 2006 -- a 125 per cent increase

The export of services from the United States to Canada and Mexico increased by 289 per cent (Export Gov, 2011).

b) Investments

At the level of investments, these are also consistent with the increases in trade as well as consistent with the regional efforts towards economic integration. Specifically, the investments of the United States into Canada and Mexico have increased by 189 per cent. The investments accumulated $61.7 billion in 1993 and had reached $331.2 billion in 2006. Canadian and Mexican direct investments in the United States cumulated $166.1 billion.

These increases in investments are pegged to the existence of regulations and policies which protect investments and ensure correctness and transparency.

"With limited exceptions, NAFTA requires U.S. investors to be treated in Mexico and Canada as well as those countries treat their own investors or investors of any other country in the establishment, acquisition, and operation of investments. NAFTA also guarantees investors the right to receive fair market value for property in the event of an expropriation. The protections of NAFTA's Investment Chapter are backed by a transparent, binding international arbitration mechanism" (Export Gov, 2011).

An important point to be made at this stage is represented by the fact that North America has become the destination of increased investments in the aftermath of signing the NAFTA. And a significant increase is observed as originating from Europe. In other words, as trade was liberalized between the United States of America, Canada and Mexico, the European investors gained more confidence in the integrated economic system in the region and invested more resources in the area. This trend is observable at the overall level of the European countries, without any emphasis on specific states which might have invested more in the better integrated North America. Such a finding specifically indicates the need for more thorough research (Buckely, Clegg, Forsans and Reilly).

5. The role of governments

The governments of the three states -- the United States of America, Mexico and Canada -- have played an essential part in the construction, signing and implementation of the North American Free Trade Agreement. They have focused on identifying specific areas which raised issues and problems and strived to resolve them in an efficient manner. Emphasis was continually placed on integration, cooperation and transparency (Department of Finance Canada, 2008). The intergovernmental agreements are as such beneficial for all three countries as they safeguard the interest and well-being of all parties involved in trade through the NAFTA.

"The government procurement provisions of NAFTA apply to the procurement of goods, services, and construction services. U.S. suppliers are granted nondiscriminatory rights to bid on contracts to supply most Canadian and Mexican central government entities" (EXPORT Gov, 2011).

6. The role of business decisions and strategies

The regional economic integration in North America has been based on the principles of business decisions and strategies. The manifestation of the agreement was that of the creation of an economically integrated region in which people, capitals, technologies and merchandise could travel freely and without encountering barriers. In such a context, the economic agents would be able to manufacture and export their products, whereas the people would be able to purchase their desired items from a wider selection of domestic and foreign products.

The NAFTA played as such a great subsequent role within the business community. As it has already been mentioned, the states all increased their levels of exports and investments to as such generate more employment opportunities and increased national wealth. But as it has been mentioned throughout the commencement of the project, the agreement has been met with both praises as well as criticism. The main critics of the NAFTA argue that the agreement has been more beneficial for specific business sectors, rather than attaining the social and general economic objectives. Specifically, it is blamed for allowing economic agents to more easily close down plants in the U.S. And outsource the jobs to the more cost effective Mexico. Such a turnout is more dramatic than the financial benefits of regional integration. In other words, the North American Free Trade Agreement has created a context in which economic agents could pursue profits and demise the state of the American citizens (Day).