The European Union and Business

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					The European Union and

   Is it all we are told it is?
            The EU - 1
Customs Union         Firms have access
Common External       to most appropriate
Tariff                factors of production
Freedom of            firms have access to
movement of           large markets
people, product and   firms are protected
capital               from outside
Advantages - firms    competition
have free access to   increased internal
markets which         competition
would otherwise be
                 EU - 2
Disadvantages -do       So what makes for
we buy from lowest      international
cost sources            competitiveness?
others have ‘open’      Trading blocs
access to our markets   costs of production
sheltered from real     corporate cultures
competitive forces      trading agreements
marketing strategies    clubs e.g WTO
to suit all
International Competitiveness
NAFTA                    E.g Russia - now
Former Eastern           changing laws on
Europe - new             contract and property
markets,                 Developing Countries
opportunities, we        - NIC’s, low income
have expertise to sell   countries,
BUT - forms, political   new world economic
instability, low         order - what of
incomes,                 China?
economic conditions
          Globalisation - 1
Growing importance       De-regulation
of international trade   liberalisation of trade
rise of MNC’s            standardisation of
global                   consumer tastes
strategies/competitive   growth of emerging
advantage                markets
technical changes        greater consumer
transports costs         awareness
         Globalisation - 2
Think - competition,   MNC’s avoid
consumer               protectionist policies,
expectations,          standardise markets,
economies of scale,    transfer capital, profits
location,mergers and   and skills
market control         balance of payments?
other agreements e.g   Social responsibility?
joint ventures,        Interference in
franchises             domestic affairs?
    Impact on UK Business?
Better motivated workers?
Improved Industrial Relations?
Improved Productivity?
But – will labour costs increase?
Will competitive ness be reduced?
Will we lose trade?
Will it force difficult economic decisions on us/
Is it value for money?
What of the Single Currency?
    Business and the Euro?
What of those outside the ‘zone’?
Might it impact on their export prices and may
imports from within the ‘zone’ appear to less
Will bigger units drive costs down and exclude
the smaller producer?
Will small suppliers of big business have to use
Retailers in tourist areas?
Subsidiaries of large firms? Banks?
        Single Market- 1
Free access to market – 400m and rising
Access to factors – integration?
Protection from external competition –
Increased competition (Internal)
Drive for efficiency and common standards
Common currency
Transparency of prices
        Single Market - 2
Consumers will decide on price and non-
price factors
BUT – will choice continue to expand?
Will costs fall?
Reduced market shares as competition
increases = less economies of scale?
Lack of efficiency as barriers protect?
Can all tastes be satisfied – too diverse?
        Single Market - 3
Will the marketing mix have to be
Problems with expansion beyond 25?
So, does it have other less obvious power
to change things?
Greater freedom to move?
End of tariffs, quotas, government
subsidies, harmonise taxes, reduce
transaction costs?
        Single Market - 4
We now have to tender for large public
Will we move towards EU wide
Will decisions become more centralised?
Will trade creation grow? – replace high
cost domestic production with imports from
a more efficient EU partner?
          Single Market - 5
Will trade diversion increase – switch purchases
to high-cost suppliers?
If we are to increase economic welfare then
internal producers will have to be as efficient as
external producers?
Does a Customs Union offer dynamic market
conditions? Inelasticity of demand and supply of
commodities affected by CET
Will EU reduce monopoly power?
        Single Market - 6
Will EU increase drive for R and D and
Will it push for economies of scale and
what of diseconomies?
Will growth be ‘balanced’ – peripheral v
core areas?
Structural problems?
Increased mobility of labour
Power of mergers/takeovers?
         Single Market - 7
What of price fixing?
What of predatory pricing?
What of need to monitor corporate behaviour
and application of Social Charter and Health and
Where will free factors, such as labour and
capital flow?
Will EU unemployment rates vary?
Can all new members afford to adopt social
        Single Market - 8
Signed 1986
Non-discrimination between imported and
domestic goods
Mutual recognition of products but
acceptance of different standards
Burden of Proof
4 big areas removal of frontier controls,
technical barriers, public procurement and
fiscal frontiers
      Single Currency - 1
Needed to reduce uncertainty
Bring harmonisation within monetary and
fiscal regimes
To reduce use of exchange rate
Control money expansion within member
Competitive de-valuations
       Single Currency - 2
Started with ERM – UK left in Sept 92.
Maastricht Treaty decides on currency
Monetary Union – designed to create
common inflation and interest rates within
member states
Integrate financial sectors, so developing
greater freedom of capital
      Single Currency - 3
Membership based on meeting
convergence criteria and accepting
political rules
Price stability – no more than 1.5% above
average of three best performing members
Interest Rates – no more than 2% above
average of the three member states with
lowest inflation rates in previous year
Gov deficit – no more than 3% of GDP.
         Single Currency-4
Public Sector Debt Control – must not exceed
60% of GDP
Reduced transaction costs
Reduced uncertainty
Price transparency
Lower interest rates
Lower inflation and unemployment
Euro a powerful currency, greater parity with $,
integration of financial markets, greater market
liquidity, sounder fiscal policy
       Single Currency - 5
Gains? – one catalogue price, one bank
account, less formalities, stability,
enhanced competition as prices remain
stable, integrated bond markets, stricter
discipline in tax issues
BUT – at what costs?
Loss of economic sovereignty
Asymmetric shocks
Lack of convergence – two speed Union?
        Single Market - 6
Different labour market regulations
Different growth rates
What if one country gets out of synch?
What if monetary flexibility required?
Structural differences between countries –
we export 52% to EU, Germany 56%,
France 63%
        Single Market - 7
Different housing market – mortgage debt
in UK = 57% of GDP, 33% within rest of
More vulnerability to oil price hikes?
Can it be sustained as enlargement
Can Regional Policy cope
            The future?
Can the poorer nations be
Common Agricultural Policy?
Greater political cohesion needed?
Managing the Euro?
Huge trading block?
Trade-offs – winners v losers