International Trade: Tariffs, Barriers, Economic Integration & BOP Markets
Tariffs and Trade Barriers
Tariffs: A tool used by governments to protect local companies from outside competition. The most common forms are:
- Specific: Imposed on particular products, by either weight or volume, and usually stated in the local currency.
- Ad valorem: The charge is a straight percentage of the value of the goods (the import price).
- Discriminatory: A tariff charged against goods coming from a particular country. Except in special circumstances, such as anti-dumping duties, this is a violation of MFN (most-favored-nation treatment) and is prohibited by the WTO against other members.
Non-Tariff Barriers: Trade barriers that restrict imports or exports of goods or services through mechanisms other than the simple imposition of tariffs.
- Quotas: Limits on the amount of a good produced, imported, exported, or offered for sale.
- Embargoes: Restrict the trade of specified goods and services. Embargoes are a measure used by governments for specific political or health circumstances.
- Administrative delays: Administrative and bureaucratic delays at the entrance, which increase uncertainty and the cost of maintaining inventory.
- Local-content requirements: The legal establishment of a share of the final product, which should be produced by local (national) manufacturers, in case of selling this product in the domestic market. Typically, this method is used by the governments of developing countries in order to replace imports with domestic production.
Economic Integration
Economic integration: The organization of a group of countries in order to improve trade within their territories.
Reasons:
- To reduce, and ultimately remove, tariff and non-tariff barriers to the free flow of goods, services, and factors of production between each other in a particular area.
Economic integration benefits:
- Opening with the countries that make it a much wider, high consumption capacity which allows the level of its exports to significantly increase, which directly benefits the economy market.
Bottom of the Pyramid (BOP) Market
BOP: Refers to the poor people’s market, which has been seen as a gold mine for reaping business profits.
Key elements to thrive in the low-income market:
- Creating buying power
- Shaping aspirations through product innovation and consumer education
- Improving access through better distribution and communication systems
- Tailoring local solutions
Focus on the BOP market in relation to:
The Poor as Consumers
The BOP is concentrated in 4 regional areas: Africa (12.3%), Asia (72.2%), Eastern Europe (6.4%), and Latin America and the Caribbean (9.1%). Rural areas dominate most BOP markets in Africa and Asia, while urban areas dominate most in Eastern Europe and Latin America and the Caribbean.
Two-stage model to reach BOP customers:
- Deep cost management: Understand the needs that the product/service satisfies and re-engineer the value chain to reduce costs (cheaper inputs, reduce elements, packaging size, etc.).
- Deep benefit management: Customer’s needs and wants are different, so they need to redesign (convenient locations, transport).
The Poor as Marketers of Products and Services
- Access to credit (microfinance).
- The establishment of alliances.
- Adaptation of the marketing mix.