European Union (EU) and North American Free Agreement (NAFTA)

International Business
Name
Institutional Affiliation
International Business
Trading blocs have become a common topic today in the world of business. Trade agreements are proliferating everywhere with every new day new agreements signed by nations to form different trading blocs. They affect every industry, and no firm is spared by the impacts of the trading blocs. This paper seeks to critically analyze the implications of these trading blocs on international businesses, how helpful they are, how they affect the firm’s decisions and the opportunities it unlocks for various international firms. Examples shall be drawn from two major regional blocs in Europe and America; European Union (EU) and North American Free Agreement (NAFTA).
Implications of the Trading Blocs for International Businesses
Regional trading blocs have great implications for the success or failure of the international businesses. Trading blocs have led to enjoyment of economies of scale by international companies. Larger markets enhance efficiency and productivity of large factories due to lowered overheads. Multinational companies will scheme these benefits by scaling up their production so as to save more money (Steers and Nardon 2014). Large companies will also have a choice of relocating its operations to areas within the trade bloc that can realize the least production costs but still charge former prices for their goods and services realizing higher profit margins. No tariffs and duties would be imposed on these firms. They would have the liberty to choose between the productions methods that are labor intensive in areas where the labor is cheap or capital intensive where the labor cost is high. International businesses would also enjoy reduced costs. As companies relocate their operations and enjoy large economies of scale, prices of goods and services are likely to come down. Some companies would choose to source raw materials and from leading companies which will be cheaper than sourcing such materials from other sources (Steers and Nardon 2014). Multinational companies will realize increased volume of sales as the market expands (Steers and Nardon 2014). This will see these companies increase in size and reap more profits.
Are Trading Blocs Helpful or Harmful?
Trading blocs possess both advantages and disadvantages to businesses globally. To start with advantages, firms would freely trade within the bloc accessing markets that were initially dominated by local firms. Second, trading blocs tend to hence market access, paving way to intensified trading among the members of the trading bloc (Beugelsdijk, et al. 2013). This comes about in cases where the high-cost domestic producers are replaced by low-cost imports which lead to reduced level of pricing hence stimulating consumption effect that relates to increased demand for goods and services. Third, Firms will enjoy the benefits associated with large economies of scale as they operate at a multinational level. Fourth, trading blocs creates and allows more job opportunities for regional members as they can work internationally (Beugelsdijk, et al. 2013). Lastly, trade blocs has policies that enables Firms within the bloc would be protected from cheaper imports that would c...