Trade Block Essay

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1. What are the main approaches that can be taken when developing regional trade blocs? What is the motivation behind developing such blocs?

Countries establish trading blocs because they believe free trade benefits their consumers by providing higher quality at lower cost. Such blocs tend to be regional because it is easier to come to an agreement with a few neighbors than with many remote partners. Small companies face challenges when their home markets open up to external competition and their native competitors become even bigger. If small businesses can address these challenges successfully, regional trading blocs can provide them with additional opportunities for growth. Economies of Scale
A key argument for the creation of trading blocs is that the larger markets result in higher efficiency and productivity through larger factories and lower overhead. Such factors benefit large businesses that can scale up their production and save money. The operations of small businesses are not large enough to generate substantial savings in this way, and small companies may not even be able to finance such expansion. After the creation of regional trading blocs, small companies may find that they are dealing with more and larger competitors. To survive, they must maintain the strategy that allowed them to succeed against larger competition in the first place.
Relocation of Operations
In addition to economies of scale, regional trading blocs allow large companies to place facilities where the costs are lowest, without incurring tariffs or duties. They may produce labor-intensive parts where worker pay is low and high-tech goods where the workforce is educated. Small companies don't have production large enough to separate in this way, and after the establishment of regional trade blocs, they suffer from pricing pressures as their larger competitors manufacture products at lower costs.
Cost Reduction
As prices come under pressure from economies of scale and the relocation of factories, the cost of supplies and parts drops as well. While their prices are under pressure, small companies may find that they can source raw materials and manufactured parts at lower cost from new suppliers. Small businesses that position themselves to take advantage of such cost reductions can thrive in regional trading blocs. The key is to anticipate where costs may decline, adjust company strategy to prepare for the corresponding adjustments and implement the changes quickly.
New Markets
Even if small companies adjust to the new cost and price levels, they may see their sales volume drop as they receive less money for the same products. To ensure their survival in a regional trading bloc, they have to increase sales by expanding
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