Business Opportunities the European Union Provides - Essay Example

Business opportunities within the European Union The fast changing business trends of the world stresses on the need for curtailing costs and increasing operational efficiency to enhance the bottom line of a company. Operational efficiency in turn calls for lowering costs and getting things done in the smallest amount of time. This calls for specialization of work and skills. Often, the driving forces behind globalization are the need to enhance efficiency and reduce costs. Often companies that are in search of these two twin interlinked objectives setup their bases outside their countries. For example, many companies in advanced nations have located their manufacturing offices in developing nations where skilled labor is comparatively cheaper. (Baran. et al., 1972, 70-156). Similarly, agriculture-oriented companies may set up their farms in distant lands where their products can be cultivated cost effectively. Hence, we can see that cutting down distances and breaking down international barriers has a profound effect in generating profits. Globalization of operations has become a chain in which each link has a specific and important role to play. The high point of Globalization is that unlike old management principles, Globalization builds on the skills that are already present in a region. Hence, it is in a way a process that scouts for opportunities that exploits the resources as well as skills of different regions of the world. Globalization is in a way, the deregulation of the world economy because the success of the business depends on many entities that may be spread across the world. It is also a process in which established companies use their experience and advantages to build affiliates all over the world. Such a setup ensures that key skills or learned skills always remain with the mother company while repetitive functions are performed by the affiliates at an advantage. Often Globalization creates a hub in which research and development, and administrative activities are performed by the mother company while manufacturing and other repetitive jobs are performed by the affiliates. In such a scenario, it makes sense for huge companies to invest their time and money on business units that are located around the world. Estimates indicate that about 60,000 multinational companies have more than 800,000 affiliates all over the world. This is to ensure that the business units that could perhaps be located in remote lands adhere to certain basic norms and practices that would sustain the quality of the product. When the recipient nation reciprocates with favorable policies and regulations that facilitates the easy entry of foreign companies into their lands, it leads to Foreign Direct Investments (FDIs) that plays a major part in the developing the local economy and its development. Hence, it may be seen that FDIs sponsored by multinational companies (MNCs) play a major role in ensuring the quality of the product that is expected from the company, and also developing the local economy that would not have developed to such a level without foreign economic intervention. (The Economist. 1997, p.15). Key issues associated with the economic and political integration in the European Union When we analyze the prospects of UK-based firms in the European Union (EU), it is important to note that the political and economic unification of the now thirteen member Euro zone carries much significance for the development of businesses in the area. For example, the mandatory inflation levels agreed to upon by members of the European Union and their convergent financial policies can decide how foreign firms are able to set up their base in these countries. The unification process sets into motion many checks and balances in the economic scenario that will affect domestic as well as international business operators in the region. The thrust in globalization and free market strategies has seen many countries opening up their economy to foreign industrial powers. What was once a protectionist market has evolved in many countries, into a highly competitive market which gives equal opportunities to both national and international players. As part of the strategy to open up their resources to foreign countries and to attract foreign investments many countries have devised new plans and modified their laws so as to keep up with the times. Even though the creation of the Euro zone is believed to have been smooth, it had carried a lot of problems that are relevant even today. The unification of the currencies of the member states of the existing European Union had either upset or encouraged growth in many financial sectors worldwide. Similarly, the prospects of large scale migration of workers and labor providers in the coming months as more nations join the Euro zone is also a reality. Other factors that are important in the context of establishing a labor force in the Euro zone are the threat that immigrants pose on the indigenous labor force, demographic problems, cultural clashes etc. (Candidate countries Eurobarometer). The business environment in the candidate nations have only recently opened up, thanks to the exit of communist regimes and their overbearing effect. Many countries such as Slovakia had very rigid business environments that did not encourage foreign investment. Markets were relatively closed to outside investment, labor laws are difficult for businesses to sustain and business legislations are not encouraging. Similarly infrastructure was very poor with housing and basic infrastructure being the worst hit. Other than the economic issues that seem to always take precedence in the discussions concerning migration, there are very important economic issues that need to be given some consideration. Focusing on Germany, which seems to have a lot data regarding emigration, it may be seen that the number of foreigners in the country is very high. At the same time, it also must be observed that the distribution of foreigners is very erratic and most foreigners confine themselves to certain pockets in the country, where their community thrives. Experts believe that such social consolidation could be prompted by a variety of factors like social security, similar cultural values and the ability to sustain calamities as a group. (Soltwedel. et al., 2000, Number 2). Often these communities in the past have been able to develop themselves as a thriving force that has contributed much to the countrys economy. However, social isolation of such groups is a potential problem that could affect the country in many ways. Such and similar problems can be expected in future when more companies join the Euro zone. It will also be wishful thinking that such issues have already been solved in these nations. (Sorensen 2002). Many countries like Germany, Austria and Britain are concerned by what is popularly called as the "pull factor": the general well being and promise of a better life, which encourages worker to immigrate to these countries. These countries are well known destinations in the third world nations and have been accepting workers since decades. (Baran. et al., 1972, 70-156). They have strong economic positions and the facilities that they offer in terms of compensation, work environments, human rights etc, are much superior than most of the other nations. It is therefore a matter of great concern that almost everyone wants to go and settle in these nations. Britain-based Multi-National Corporations (MNCs) and European Enlargement Businesses are built on strategy, acumen and trust. Strong business acumen identifies the business, strategy executes the idea and carries it through, and trust is the mainstay on which successful business rest. Trust in business is controlled by both internal as well as external factors. While the internal factors are related to the administration and general conduct of the business, the external factors are those that determine how the business relate to the places and people where it is established. There are many factors that contribute towards building trust between entrepreneurs and their counterparts in any government. The biggest factor that any business manager would look for before investing is current and future stability of the business and both short term and long term benefits from the business. This is particularly so when a new business is being established in a country. The thrust in globalization and free market strategies has seen many countries opening up their economy to foreign industrial powers. What was once a protectionism market has evolved in many countries, into a highly competitive market which gives equal opportunities to both national and international players. As part of the strategy to open up their resources to foreign countries and to attract foreign investments many countries have devised new plans and modified their laws so as to keep up with the times. Such actions have to be followed through by concrete actions which will contribute to building the trust of an investor and making him feel that his investment is safe in that particular land. (Hudson 1989, p.1-18). The EU does offer facilities such as a single market borderless trade in which goods, capital, and people can be freely transferred, a dominant business language, and a common currency. However, experience has shown us that the global financial system is not the same everywhere and that what holds true in one nation need not be even relevant in another. This means that the rules and policies to which companies in one nation have been exposed to may conflict with the policies in another, thereby creating conflicts in basic business operations. The financial system within a country can seriously affect investment and innovation within industrial clusters. Many foreign government policies are not always open to allowing foreign investors in a country and hence, have their own systems, which frustrate the foreign countrys designs to dominate the local market. However, such protectionist markets are becoming very rare due to the changed economic situations in the world, where internal as well as external pressures are forcing protected markets to open up to foreign investors. Contrary to popular belief, statistics reveal that the Euro zone markets are more export oriented than importing products. This means that the domestic market is not as much as investors would expect it to be. For example in Germany, the economic growth has largely been dictated by the spurt in exports and not because of domestic need and market development. Similar is the case with many other EU nations where people show a reluctance to invest because of slow economic growth. A British firm that sets up base in such countries will have to focus on exports rather than expecting domestic demand to prop it up. The impact of the Single European Market (SEM) is also of significance when we consider the potential for British firms to grow in the EU. The fact that SEM will create cost differentials in products created by UK-based companies will add to the problems of British firms. Similarly, SEM could also create a spurt of mergers and acquisitions that need not be favorable to British firms. One of the major problems with SEM is that more than foreign firms, it will be the main European countries that will derive benefit from trade arrangements with other smaller members of the EU. Market variations in demand and supply are the driving force f any business. Due to the SEM, British firms may have to operate in less flexible business environments that could stimulate lesser growth of may even stifle growth to an extent. Recently, Britain voted against the country joining the EMU because of fears that doing so would carry a significant economic cost. However, on the brighter side, a SEM will lead to a cut in domestic monopoly power. Experts also opine that even though the idea of a SEM is plausible, in reality it can lead to many issues that may not easily solved. For example even though a single market envisages the free movement of workers across countries, in reality it may not always be possible, which in turn can affect an enterprise that has setup its base in the European Union. Similarly, the prospects of preferential treatment of investors are a reality in spite of governmental efforts. In addition more effort will be needed to privatize or liberalize key areas such as telecommunications and air traffic. Business analysts also believe that the threat to UK-based companies will rise as the European Union expands. In addition factors such as non-adoption of the Euro and strong exchange rates can also affect the profitability of a British firm. In spite of grandiose plans and sincere efforts there is an element of risk that national companies will be treated favorably by the local administration than companies that come across the border. Finally, there is a real threat of a takeover as companies merge and restructure through the union. (Andreff 1995, pp.113-141 and Becker 1995, et al 49-133 and Cuckovic 1996). Some experts are of the opinion that the expansion of the European Union could have a drastic effect in the development of the markets and the influx of FDI. However, many of the countries that have later joined the EU are smaller nations who cannot sustain economic growth on their own. In fact countries such as Germany, France and Italy are the drivers of growth in the union as a whole and when these nations fall short of growth expectations, the result can be less than optimal. Every venture that has national and international implications leaves certain important clues, which indicate that the particular event is taking place in the society. In the case of globalization, an ideal indicator would be the non–existence, or at least, the process of obliteration of boundaries like organizational boundaries, national boundaries, trade market restrictions etc. While this has been true in some countries, it has not been smooth in the major part of the world. There are poignant examples that indicate both the success of globalization as well as the resistance that it has had to face in the world. For example the formation of the European Union is a very strong event that shows that countries have to come together for mutual existence. The European Union was not formed simply to appease a global sentiment of unity. It was the by product of an increased perception of threat to the individual nations. In fact, it is ironical that the enhanced thrust towards globalization was the cause for much thought among the European nations to come together and form their own forum that would give them precedence over other countries. The threats that the members of the European nations faced were military, business and cultural threats that needed a strong united effort to counter. Even if the threat to these nations were not direct, the feeling that they were losing their voice in the international scene and that they were experiencing increasing hegemony from other nations could have caused them to think of a formal powerful union of nations. The potential expansion of the European Union will pose risks to manager and entrepreneurs who will have to cope with many issues to develop their business. Experts believe that UK-based businesses in the union will have to do a lot of work to adapt to various cultures and practices to be successful. Companies will have to create a global strategy and adapt it to meet the local demand. The EU is less likely to be similar to the Western Europe that most Britons are aware of and therefore may have several issues that have to be tackled in the long run. Finally, the European Union’s competition policy will also have a significant effect in encouraging companies to think twice before investing in the region. Reports have shown that there are indeed industries in the EU in which the potential of competition is limited. For example businesses such as energy supply, car retailing, telecommunications and postal services industries cannot offer impartial business operations in the EU. Factors that limit competition could be economical such as price differentials across markets or administrative issues that favor one company over the other. Conclusion Even though the creation of the European Union and its subsequent expansion has been based on certain objectives and policies that have been largely successful in its implementation, reports suggest that there are many barriers to UK-based firms that may be interested to setup shop in the region. Although these problems are not entirely insurmountable, a definite amount of care and caution is advised before a major investment in planned in the European Union. Bibliography Andreff, M. & Andreff, W. Economic Disintegration in Eastern Europe: Towards a New Integration? Dallago & Pegoretti, 1995, pp. 113-141 Baran, Paul A. & Paul, M. Sweezy., 1972. Notes on the Theory of Imperialism. Economic Imperialism: A Book of Readings. Ed. Kenneth E. Boulding and Tapan Mukerjee. Ann Arbor: U of Michigan P, 1972. 156-70 Becker, D., E. Lira, M. Castillo, E. Gomez, & J. Kovalskys., 1990. Therapy with Victims of Political Repression in Chile: The Challenge of Social Reparation, Journal of Social Issues 46: 133-49 Breton, A., Galeotti, G., Salmon, P. & Wintrobe, R. (eds)., 1995. Nationalism and Rationality. Cambridge: Cambridge University Press. Candidate countries Eurobarometer. 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