INTERNATIONAL

BUSINESS
INDIVIDUAL ASSIGNMENT
VIJAYAVARMAN R (14MBA0146)

QUES 5: NAFTA and EU are two celebrated examples of REI efforts. Study these
groupings and explain the business strategy implications of each type of economic bloc
for Small and medium-sized enterprises (SMEs) which generally tend to be at a
disadvantage when it comes to competing against large corporations in regional
economic blocs. What steps can SMEs in particular take to maximize prospects for
success when doing business in a either of these blocs ? Offer your recommendations, in a
structured report format to an MSME focused think-tank based in Singapore, which is
quite vocal in its protest in ASEAN.

Question 5
NAFTA and EU are two celebrated examples of REI efforts. Study these groupings and explain
the business strategy implications of each type of economic bloc for Small and medium-sized
enterprises (SMEs) which generally tend to be at a disadvantage when it comes to competing
against large corporations in regional economic blocs. What steps can SMEs in particular take to
maximize prospects for success when doing business in a either of these blocs ? Offer your
recommendations, in a structured report format to an MSME focused think-tank based in
Singapore, which is quite vocal in its protest in ASEAN.
(Hint: you have to offer relevant evidence at each stage of your argument)

1) Small & Medium sized enterprises (SMEs) business strategies - NAFTA:

NAFTA services provisions established a set of basic rules and obligations in services trade
among partner countries. The agreement extended on initiatives in the U.S & Canada FTA and
the Uruguay Round of multilateral trade negotiations to create internationally agreed disciplines
on government regulation of trade in services. The agreement awarded services providers certain
rights concerning non-discriminatory treatment, investment, cross-border sales and entry, and
access to information.
In addition to market opening measures through the elimination of tariff and non-tariff barriers,
NAFTA incorporated numerous other provisions, including foreign investment, intellectual
property rights (IPR), dispute resolution, and government procurement.
Foreign Investment: NAFTA removed significant investment barriers, ensured basic
protections for NAFTA investors, and provided a mechanism for the settlement of disputes
between investors and a NAFTA country. NAFTA provided for non-discriminatory treatment
for foreign investment by NAFTA parties in certain sectors of other NAFTA countries. The
agreement included explicit country-specific liberalization commitments and exceptions to
national treatment. Exemptions from NAFTA investment provisions include the energy sector in
Mexico in which the Mexican government reserved the right to prohibit foreign investment. It
also included exceptions related to national security and to Canadas cultural industries.

 IPR: NAFTA built upon the then-ongoing Uruguay Round negotiations that would create the
Trade Related Aspects of Intellectual Property Rights (TRIPS) agreement in the World Trade
Organization and on various existing international intellectual property treaties. The agreement
set out specific enforceable commitments by NAFTA parties regarding the protection of
copyrights, patents, trademarks, and trade secrets, among other provisions.
Dispute Settlement Procedures: NAFTAs provisions for preventing and settling disputes
were built upon provisions in the U.S.-Canada FTA. NAFTA created a system of arbitration for
resolving disputes that included initial consultations, taking the issue to the NAFTA Trade
Commission, or going through arbitral panel proceedings. NAFTA included separate dispute
settlement provisions for addressing disputes over antidumping and countervailing duty
determinations. Government Procurement. NAFTA opened up a significant portion of federal
government procurement in each country on a nondiscriminatory basis to suppliers from other
NAFTA countries for goods and services. It contains some limitations for procurement by stateowned enterprises.
Analysts are in agreement that NAFTA has exposed up new business opportunities for small and
mid-size organizations. Mexican consumers shell out more each year on U.S. services and
products than their alternatives in Japan and Europe, so the stakes for small business owners are
high. (Most of the researches & reports of NAFTA focus on the effects of U.S. business venture
with Mexico. Trade with Canada has also been increased, but the passage of the trade
understanding did not have as great an effect on the already liberal trade standards that America
and its northern neighbor abide by.)
Some small organizations were seriously affected directly by NAFTA. In the past, larger firms
always had an edge over small ones simply because the large organizations could manage to
build and manage offices and/or production plants in Mexico, thereby averting many of the old
trade limitations on exports. In addition, pre-NAFTA laws stipulated that U.S. service providers
that wanted to do business in Mexico had to establish a physical existence there, which was
simply too overpriced for small firms to do. Small firms were stuck-they could not manage to
build, nor could they manage the export tariffs. NAFTA flattened the playing field by letting
small firms export to Mexico at the same cost as the large firms and by reducing the requirement
that a business establish a physical existence in Mexico in order to do business there. The lifting

of these limitations meant that vast new marketplaces were suddenly open to small organizations
that had formerly done business only in the United States. This was regarded as especially
important for small organizations that produced goods or services that had matured in U.S.
marketplaces.
Nevertheless, small firms interested in carrying out business in Mexico have to recognize that
Mexican business legal guidelines, hiring standards, employee perk requirements, taxation
activities, and accounting principles all include features that are distinctive to that country. Small
organizations, then, should familiarize themselves with Mexico's framework of business rules
and practices not to describe the demographics customs of the marketplace-before committing
resources to this region.

2) Small & Medium sized enterprises (SMEs) business strategies - EU

Small and medium-sized companies (SMEs) are the backbone of Europe's economy. They
represent 99% of all businesses in the EU. In the past five years, they have created around 85%
of new jobs and provided two-thirds of the total private sector employment in the EU. The
European Commission views SMEs and entrepreneurship as essential to ensuring economic
growth, Advancement, job creation, and social inclusion in the EU.
What the EU Regional Economic Integration (REI) does for SMEs ?
I.

Establishes a business friendly climate:

At the centre of the Commission's action is the Small Business Act for Europe (SBA) that offers
a comprehensive SME policy for the EU and EU countries. The SBA encourage the 'Think Small
First' principle and encourages entrepreneurial spirit amongst European residents.
II.

Encourages entrepreneurship:

The Commission encourages entrepreneurship through the Entrepreneurship Action Plan,

supports entrepreneurship education, and offers support tools for ambitious entrepreneurs.

III.

Improves access to new markets and internationalisation:

The Commissions top priority is to ensure that companies can rely on a business friendly
climate and make the most out of cross border strategies, both within the EU Single Market and
outside the EU.
IV.

Provides access to finance:

Access to finance is the most pushing issue for many small companies. The Commission
operates on increasing the financing environment for SMEs and offers information on funding.
The Late Payment Directive enhances businesses' rights to prompt payment.
V.

Aids SME Competitiveness and Advancement:

Encouraging competitiveness and Advancement are essential aspects of EU policy in relation to

business and enterprise, in particular for SMEs.
VI.

Offers essential support systems and information for SMEs:

Your Europe Business Portal is a practical manual to doing business in Europe. It offers
business owners with information and interactive services that help them expand their

business abroad;
Enterprise Europe Network helps SMEs and business owners access market information,

overcome legal obstacles, and find potential business partners across Europe;
SME Internationalization Portal offers facts on foreign markets and assists European business

internationalize their strategies;

Single portal on Access to Finance assists SMEs find finance supported by the EU.

3) STEPS FOR SME TO BE SUCCESSFULL

High Value-Added Support Services
In the knowledge-based economy, it is increasingly important to encourage public authorities to
invest in the provision of high value-added services and in the reinforcement of specialist
organisations.
Firms should focus on only one or just a few markets initially

At the initial stage, firms should not hold too much in their business as this will become too
heavy for longevity in business. SMEs should focus on only one or just a few markets initially
until such a time when expansion is necessary. Rapid or immature expansion may lead to
business failure.
SMEs should enter markets on a small scale
It is not proper for SMEs to start exportation business on a larger scale, as this has greater
consequences in case of business failures. Entering on a small scale allows time for an
assessment of possible expansion and limits losses to manageable levels. This ensures survival
since SMEs have low levels of capital.
Being realistic about the time, commitment, and resources needed
SMEs need to have a proper and dynamic planning on the time, level of commitment and
resources needed for the whole process of exportation. Effective planning will ensure success
and business survival. Harp hazard planning will lead to poor policy implementation and
inability to cater for foreign demands and hence exportation failure. Good relations with the
customers in the foreign market needed and hence reliability generated.
Employment Policy
Whenever possible, locals should be employed in the foreign markets. This ensures accurate
treatment of customers and clients especially in the early stages of exportation. Locals are well
versed in the social ethics and those values that are preferred by the nationals and hence will
boost business operations. Business environment is a crucial factor to business survival. Also
culture and values plays a major role in company profitability.
Technology upgrading is key to the continuing success of SMEs, especially those which
produce tradables. In general, private rather than collective mechanisms are the main external (to
the firm) sources of technological capability. Such links are important in many other countries
even if less dense than in Japan. Where such helpful private-sector links are limited, the
challenge of technological acquisition is a formidable one, and the consequence can be
technological isolation and ad hoc learning. Yet a number of experiences from outside Latin
America (such as that of Koreas engineering-based SMEs) and within it (various industries in

Brazil and Argentina, Colombias craft-based leather and garment SMEs, Chiles woodprocessing) suggest that it is possible to successfully surmount this challenge via activist
strategies at both the firm and collective levels.
Access to credit in the healthy evolution of the SME sector has been controversial, both with
respect to whether the lack thereof is typically one of the major impediments to SME success,
and with respect to whether financial liberalization is more likely to improve access or weaken it.
Marketing success constitutes one of the key challenges for many SMEs. A valuable experience
for SMEs in many industries is participation in trade fairsat home and/or abroad, the latter of
which can be a good means of penetrating export markets.(Trade fairs also turn out to be an
important source of technological learning.) More generally, however, governments institutional
capacity to deliver marketing support is weak in most developing countries.