Trading Bloc with a Difference: The Commonwealth Transcends Geography, Enjoys a Unique Cultural Advantage and Challenges Conventional Thinking on Regional Trading Groups
Johnson, Michael, European Business Forum
Almost by definition, trading blocs are made up of expanded neighbourhoods of nations--contiguous states that share regional interests and can trade efficiently without incurring heavy transport costs. This is an attractive model in the global economy, with more than a dozen examples functioning successfully and now a possible ASEAN-China Free Trade Area taking shape, always within the rules of the World Trade Organisation.
There is one major exception to the geographical imperative, the Commonwealth--the successor body to the old British Commonwealth--which seems able to transcend geography and achieve a measure of cohesion through its members' shared business cultures and political history. A new focus on the economic development of the Commonwealth is helping it survive and prosper in spite of its widely dispersed membership, the variation in the stages of development of the individual countries and the decline of bloc-based protectionism.
Commonwealth countries, many of them former British colonies, benefit from similarities that have taken on crucial importance in today's fast-moving international economy: a common working language (English), broadly comparable, government and legal systems, and corresponding business practices. This so-called 'Commonwealth effect' is what member countries are attempting to exploit today.
Economists at Reading University in the United Kingdom have estimated that Commonwealth-based companies doing business within the bloc can enjoy a cost advantage of 15-20 per cent due to reduced 'foreignness' among the partners.
What is 'foreignness'? As any multinational will attest, understanding local cultures in a new foreign market can be costly and time-consuming. Grasping legal systems and business conventions in a new country can take two to three years, often impeding the start-up of manufacturing or marketing. For example, US, British and French oil majors went into Russian-speaking Kazakhstan after the break-up of the USSR only to discover that the practices of the old Communist regime had changed radically. Unsurprisingly, Moscow was out of the picture.
The personalised presidency of this newly independent state in the former Soviet Union held a firm grip on raw materials, and no investment or expansion of projects could be achieved without the president's blessing. This meant delays and mounting costs while the new system could be understood and an audience with the president could be obtained. Strategy thus had to shift from patient negotiation with the state oil ministry to penetration of the presidential suite. Only when a project was approved by the president could the investor company begin planning and exploitation.
By contrast, businesses in two countries of the Commonwealth, say Kenya and Nigeria, might be run by men who both attended the London School of Economics, who have networks in other Commonwealth countries perhaps with the same shared background, and who therefore tend to connect on business matters more quickly, thus more cheaply. Conflicts over markets will still arise but 'foreignness' looms as a lesser part of the problem.
In other words, all things being equal, it is often simpler and less costly for a Commonwealth-based company to do business inside the Commonwealth than outside it.
The result is a de facto trading bloc and a unique marriage of developed and emerging countries. The Commonwealth serves as a framework for sharing business expertise and as a by-product helps build up the poorer countries' economic muscle. The London-based Commonwealth Business Council (CBC) drives this development with practical programmes that involve the private sector for commercial guidance, ideas, funding and management expertise.
The economic weight of the Commonwealth is often underestimated.
Today, 13 of the world's fastest-growing economies and many of the developing world's leading nations a total of 54 countries--collaborate within the Commonwealth. …