We are living in the developing world, which presupposes cooperation between countries and their businesses. That is why many countries accepted globalization and started to expand their organizations abroad.
But sometimes there is no need to go too far, and it is much easier and more advantageous to implement regional integration (RI). Of course, this process is not easy, and it has a range of disadvantages, but the benefit of the operation is also immense. Considering all the pros and cons, many countries and states decide to cooperate.
It is claimed that the interest to RI occurred after the concept of globalization became widely spread. From this perspective, it can be concluded that RI is a kind of response, as globalization is seen as a consequence of cross-border operations, while RI is more like a trigger of them.
Still, both streamline the development of the country and enhance economic growth by providing the opportunity to use economies on a wider market. In other words, RI allows the states within one region to work together and bring stability and wealth.
Among the factors that can promote RI is the existence of similar problems, common goals, and history, similar culture and language, lack of resources, and the impact of globalization. As a rule, RI involves a written document, which describes the agreement between the states in detail.
The process of RI usually starts with economics, which turns into a single market when the economy of two bodies becomes totally integrated and has no boundaries. Regional economic integration (REI) occurs when the neighbor countries or states remove trade barriers.
These can be some taxes on imports, the number of imported things, and restrictions regarding the border. It is important that while trade barriers between the countries that cooperate are removed and agreed upon, those connected with other countries may be still considered by each of them separately.
Among the best examples of REI are the North American Free Trade Agreement and the European Union. The first one remained on the initial step and is still a free trade area while the second one turned into the common market (“Extension: What is Regional Integration?” par. 5).
REI considers the free trade area, which can be implemented in several ways. The trade can be liberalized, or the boundaries can be completely removed. The last variant also includes the removal of taxes, limitations regarding the number of products, and other barriers.
A customs union presupposes that the cooperating countries have one tariff for trade for the countries that are not included in this alliance. In this way, they gain an opportunity to achieve a trade policy convergence, which tends to unite nations.
A common market goes further and covers all the aspects that were previously mentioned. It also includes the mobility of labor, which presupposes “a common visa policy and a common position on residency” (Kehoe 2).
Moreover, the countries provide common standards or at least agree to accept the most crucial ones. They include those related to health and safety, trust, etc. An economic union involves the implementation of common fiscal and monetary policies.
It is aimed at the creation of a super-national governing authority, which can control the situation in the member countries, direct them, and make sure that they act according to the agreement. The last step that is to be done to create a decent REI is the development of a political union. Of course, it may be seen as a political but not an economic integration, still, the connection between them cannot be denied.
Considering the mentioned information, it can be concluded that the major benefit of the REI is the ability to export and import not only various products but also labor among the countries that are the members of the integration.
In this way, the advantage occurs not only for businesses that can expand and develop but also to the general public, as the citizens can gain more different products at low prices. Mainly these products include labor, food, and information technology, but it is not the scope.
The advantages of REI cannot be denied, and some of them were already described and hinted at. Gathering them, we can see a kind of hierarchy, which shows the importance of some benefits on the country level while others are more connected with the international business. Still, the local ones have an immense impact on the global, which will be proved while discussing the advantages of RI.
The citizens of the countries or states that are involved in RI gain the opportunity to travel to them without complications. As one of the products that are allowed to be transferred is labor, people who are in need of work or are dissatisfied with the one they have and fail to find some within their location can extend the territory for searching.
In this way, international companies can get new personnel that may be better educated or/and have more experience in the field. As a result, employee performance will enhance, which is sure to have a positive influence on the quality of products and services as well as on customer satisfaction. Thus, the company’s competitive ability in the global market will be improved.
The improvement of the local business regarding the capacity to respond to the needs of the clients should also be considered. Due to the cooperation, the companies, the performance of which is not good enough to enter a bigger market, can create an alliance or a merger.
While working together, they can find ways to fill the gaps they have and direct their operations according to the demands of all members of RI (Volz 39). Consequently, the organizations will become much stronger and will gain an opportunity to globalize successfully utilizing the best practices they share. When the organization expands and opens a branch in another country, the necessity of expatriate employees becomes evident.
By dint of RI, companies gain an opportunity to improve their expatriate training as they can receive new knowledge. Except for that, they can exchange of expatriate employees. In this way, a worker, who has already worked in a particular country, can go to it again with new responsibilities or help to train another person.
The increased variety of goods and services will improve the quality of life in the countries. The market will expand due to the free trade, so more companies, and working places will occur and, as a consequence, more people will gain an opportunity to become employed and gain more money for living.
Except for that, increased trade among the members of REI, which has no taxes, will help the countries to save some money. They can be used later to purchase other products just to gain more those they usually buy. Such things are crucial for developing countries, as they are often considered not good enough for cooperation.
Showing such results, the countries will attract global attention. Their efforts will be surely mentioned and supported by others. They will receive loans and investments for further improvement. As an outcome, their international companies will take a step forward, just as it has happened in India (Hill par. 4).
One more advantage of RI is the increased number of companies in the international market. As the countries start to transfer their products without restrictions, more firms gain the opportunity to sell them abroad and increase their popularity while enhancing business performance.
Needless to say, that such an approach will attract international clients and be beneficial. As it was said, the creation of a new large market will allow the countries to gain the products produced in each of them.
Receiving those of better quality or just with a higher degree of specialization, they will gain an opportunity to use them to create new things and promote industrial development. Such an approach will also encourage much investment in the industries.
Here the attention should also be paid to resource utilization. By dint of REI, the countries can share their resources so that they can be allocated in the most optimal way (The World Bank 365). Due to it, production is expected to become more efficient and less costly. As a result of such development, the amount of money received with the help of international trade will become bigger.
Creating common business and improving it in the local area, the members of RI can compete better internationally. Their existing forces are united and cooperate in implementing innovative strategies as well as to share their best practices.
As a result, they can resist other international organizations and win customers’ attention. It also presupposes that the cooperation among the members of REI will increase. The benefit of such an outcome is that they can expect a helping hand from one another in the case of an emergency.
As the number of RI members is limited to the neighbor countries that tend to have common or at least similar problems and views, it is much easier for them to gain consensus than for global organizations that consist of more than a hundred members located in different parts of the world.
Such cohesion reduces the number of possible issues and allows them to come to the agreement regarding the taxes for international trade, etc. As a result, the countries will be more stable in political perspective and will cope with economic challenges brought by globalization with less effort.
Thus, it cannot be denied that REI is beneficial for its members in many perspectives and can improve international and, as a consequence, global business. Still, it should also be considered from another perspective.
REI has several disadvantages that include the creation of new trading blocs. They occur as the countries cooperate and create together the limitations and taxes for trade with the countries that are not members of RI. Some may refuse to cooperate, as the taxes can increase. One more demerit can be seen while looking at the costs of the products.
Some of them may be cheaper in the non-member country, but because of the RI, they will have to buy them from a member and pay more. Some may also consider the fact that the countries need to take into account the mind of other members instead of making decisions on their own disadvantage.
When lowering the degree of national sovereignty, they may feel dependent and weak. In addition, the level of integration is inversely proportional to the degree of sovereignty, and the closer the countries become, the less power they have.
REI can also motivate people to change their working places. Believing that they can gain something better in other countries, well-qualified and experienced professionals may quit and weaken the organization they worked in. As a result, the number of challenges faced by the native country will increase, and it will be much harder for it to develop on the same level as the members of RI (Wandrei par. 5).
Of course, such demerits make REI look less attractive, but they can be coped with. Before signing the written agreement, the country should consider the terms, which it believes to be beneficial. In this way, the main purpose is to agree on the monetary and fiscal policy regarding non-member countries.
The members should mention what taxes they want to install and what products they want to receive from non-member countries. The peculiarities of labor transfer may also be underlined. There are no doubts that countries can define what decisions they want to make on their own. Of course, they will need to give up something and make a compromise, but the advantages that will follow it tend to be greater.
When the members of RI are not equal, the countries that are weaker should realize that they cannot make their business prosperous in a moment. Sometimes it is better to make the integration deeper and get involved in something more than just free trade.
Close cooperation can bring significant development and enhance the performance of the member countries. In this way, they will make their markets more attractive, which is likely to have a positive influence on investments. A small regional market can be developed by focusing on particular products. The reduction of their quantity is expected to improve the quality and increase production-cost benefits.
As an outcome, it will also be easier for the country to enter a global market and remain competitive (The World Bank 261). Of course, RI cannot be considered a solution to all the challenges faced by the neighbor countries, but it is a thing that can be used to find needed answers and even cope with the negative effect of globalization on the economy.
So it can be concluded that the drawbacks REI has been left behind by its odds. The regional common market created by dint of REI is much more superior and provides more advantages than the market of one country, especially while considering international business.
Trade liberation will cause market expansion and allow the companies to utilize resources and products more efficiently. The industries will improve performance and innovate, which is likely to bring more investment and gains. Becoming a member of RI is the step that should be made by developing countries and those that need assistance from the outside. Cooperation is a great power, and it can change the world.
Works Cited
Extension: What is Regional Integration? n.d. Web.
Hill, Taylor. India: Top Global Destination for Foreign Investment. 2014. Web.
Kehoe, William. Regional and Global Economic Integration: Implications for Global Business. 2006. Web.
The World Bank. Reshaping economic geography. Washington, DC: 2009.
Volz, Ulrich. Regional Integration, Economic Development and Global Governance, Northampton, MA: Edward Elgar, 2011.
Wandrei, Kevin. Advantages & Disadvantages of Regional Integration. n.d. Web.