Business Environment of the UK - Term Paper Example

Business in Context Table of Contents Introduction 3 Overview of the UK business environment 4 How UK business environment is affected by BRICs and emerging economies? 5 Conclusion 7 References 8 Borodina, S. & Shvyrkov, O. (2010). Investing in BRIC Countries: Evaluating Risk and Governance in Brazil, Russia, India, and China. New York, USA: McGraw-Hill. 8 British Embassy Beijing. (May 13, 2008). “UK business environment”. Available at http://ukinchina.fco.gov.uk/en/business/Export-help-for-UK-companies/uk-business-environment (Accessed: November 30, 2010). 8 Sarkar, A. N. (2009). Enhancing Global Competitiveness: Advantage India. New Delhi: I. K. International. 9 Bibliography 9 Borodina, S. & Shvyrkov, O. (2010). Investing in BRIC Countries: Evaluating Risk and Governance in Brazil, Russia, India, and China. New York: McGraw-Hill. 9 Dinnie, K. (2008). Nation branding: concepts, issues, practice. London: UK: Butterworth-Heinnemann. 9 Eltschinger, C. (2007). Source code China: the new global hub of IT outsourcing. London, UK: John Wiley. 9 Jain, S. C. (2005). Emerging economies and the transformation of international business: Brazil, Russia, India and China (BRICs). London, UK: Edward Elgar. 9 Appendix 10 Introduction Globalisation has made it possible for many developing nations of yesteryears to be transformed into emerging world powers today. This has given many developed nations, considered to be unbeatable till then, a run for their money. The world is gradually witnessing a revision in the epicentre of power as the Triad region is gradually obliterated from the limelight and makes room for the BRIC countries. Triad zone, as is the name popularly given to the three regions namely, USA and Canada, European Union and Japan, accounted for the highest economic growth rate and political stability in the world until the tide of liberalisation saw the dawn. They were essentially industrial producers enjoying high export demands which skidded off with the advent of cheaper industrial bases (D’Little, 2009, p. 4). The Triad defined by the three regions of United States and Canada, European Union and Japan, accounted for almost 70 percent of the aggregate GDP over the world. In addition, it constituted of 75 percent of international trade conducted throughout the world until the BRIC nations entered the market. They introduced a whole new phase of liberalised trade regime. The situation got worse for the Triad region as the underlying nations desperately continued their attempt to keep up with the political and economic stability. They were gradually realising the growing importance of emerging economies like India and China in the field of international trade owing to their focussed strategy towards an enhanced growth path (Sheth, 2007, p. 7). Today, the BRIC nations have overpowered the Triad to a large extent in terms of economic stability and hence concentration of power. BRIC is the abbreviation for Brazil, Russia, India and China, which very recently have emerged out of their phase of transition. These nations though entered the international trade scenario lately, have been successful at strategically shifting the global focus to themselves through well-devised technologies. In addition, these nations never lacked cheap factor resources which played a pivotal role behind their appraisal to the present state. However, such a shift of power had brought about a drastic impact of the same upon many nations, especially the global economic powers of the past. The present paper deals entirely with the extent to which UK’s, one such global power, business environment is affected by the economic power shift from the Triad region to the BRIC countries (Borodina & Shvyrkov, 2010, p. 272). Some of the primary reasons behind the economic transformation post liberalisation is the realisation that these emerging nations are rich in factor availabilities as well as foreign exchange reserves. Furthermore, they consume lower energy than that by the more advanced nations. As the adjoining graph depicts, these nations accounted for almost half of the total GDP being produced globally and also almost half of commodities being exported, which implies the advanced nations to be serving less and less of the world’s export demands. This clearly is indicative of a slipping power from the hands of the wealthier nations. However, this shift of power has taken a toll upon the prospects of businesses in UK as would be discussed in the following subsection (Dash, 2007). Overview of the UK business environment United Kingdom, a significant part of the European Union continues to be one of the largest markets around the world. Producing an aggregate of $2.2 trillion in terms of GDP, UK is regarded as the sixth largest economy in the world and a very influential trading power. The economic growth rate of the nation had been found to be plummeting especially post the credit crisis of 2008; the growth rate of national income had been 2.7% in 2007, that fell down to -0.1% in 2008 and further deteriorated to -5% in 2009. The primary sector in the economy is the service sector (77.1% of GDP) followed by industry sector (22% of GDP) and lastly by agriculture (0.9% of GDP). UK ranks 22nd in terms of world population with the value being slightly above 62 million; moreover, the population growth rate had been positive too, viz., 0.56% (CIA, 2010). UK primarily trades with the USA outside the European Union being the fifth largest market for US exports of goods, in the world (British Embassy Beijing, 2008; United States Department of Commerce, 2010). USA alone accounts for 14.7% of UK’s imports followed by Germany (11.06%). However, the domestic net volumes of exports have receded in 2009 than what they had been in 2008 primarily due to the impact of the financial shock (CIA, 2010). Moreover, the economy of UK receives a large amount of foreign investment from the USA which makes the former highly dependent upon the latter to maintain its current account balance. Rate of unemployment heightened as well from 5.6% to 7.6% between 2008 and 2009, indicating thus towards a deteriorating business environment in UK (Central Intelligence Agency, 2010). How UK business environment is affected by BRICs and emerging economies? Post the shift of economic power from the Triad to the BRIC nations, UK has encountered certain problems owing to the market environment of the nation. The discussion could be clarified more if the current situation in UK could be depicted through a detailed analysis of the nation’s political, economic, social and technical environment. Since UK is immensely involved with the USA in its trade relations, the discussion will be limited to the extent by which market environment in UK is affected by repercussions in the economy of USA (Hennigan, 2010). Political environment surmounting the market of UK United Kingdom might be regarded as a politically stable economy with two major political parties – The Labour Party and The Conservative Party. The rivalry between these two parties too could not be regarded as harmful enough given that they prefer to abide by the terms of any agreement reached between them. The most recent example could be sought from that of the Prime Ministerial elections held in the UK during 1997 which found neither of the parties gaining a clear majority votes from the House of Commons. In such a scenario, they arrived at a mutual pact stating that the entire term of 10 years would be equally divided between the two parties with the initial five terms entrusted to the Labour Party that enjoyed an insignificant majority. Though such a situation had never occurred in the economy since 1974, the national parties were believed to act with their due respect to the people of UK. This became especially clear when Prime Minister Gordon Brown stepped down himself after perceiving a loss of public confidence from him (U.S. Department of State, 2010). UK fares well among the international community as well, as could be envisaged from the pivotal role played by the nation during the formation of the NATO (North Atlantic Treaty Organisation). The nation had been a member of the European Union since 1973 apart from being a permanent member of the United Nations Security Council. Moreover, the nation assures its political stability through maintaining a large fleet of Army and Navy forces. But the nation maintains a close kinship with the USA even in this context as very evidently could be realised from the amount of assistance that the nation forwarded to the latter during the war against Iraq. In addition, UK had shown its alliance to USA post the terrorist attacks of 2001, which clearly indicate towards a closely-knitted relationship that the twin nations enjoy between them. Though prone to a subtle risk of instability on account of the recent credit crisis in USA, UK continues to maintain a political stability primarily due to the calm that political leaders in the USA have managed to keep amidst this upheaval (U.S. Department of State, 2010). Economic environment surmounting the market of UK Economically however, the nation has been downtrodden by the weight of the recent credit crisis that drained out the economy of USA out of resources to surge itself up. With the power gradually seeping out of the hands of the USA, UK can no longer continue its dependence upon the latter. In fact, the financial crunch that USA is witnessing at present in contrary to the relatively more stable situation in the Asian economies is only a hint towards the dwindling phase that awaits USA in near future. The trick that the BRIC nations have played in this regard is that they had been accumulating as much foreign reserves as possible in their Treasury without even a hunch arising among the advanced nations. Since supply of reserves is limited, the consequence of this concentration was that while these advanced nations were hard-hit due to the crisis, the emerging nations managed to maintain a stable rate of economic growth. Given that most of UK’s foreign investors are from the USA, such a drain out of resources has taken a serious toll on the businesses of UK. Moreover UK, being a part of the EU ha not yet liberated its trade regime with the BRIC nations completely, which is why they are not being able to attract much imports from them. UK business seems to be in real trouble given the tumultuous situation of USA and its partially liberalised trade relation with BRIC nations (Borodina & Shvyrkov, 2010, p. 272). Social environment surmounting the market of UK UK is characterised by a diverse population with frequently migrating people. Though the number of ethnic groups living in UK is quite high, there is a strong sense of community among them. Most of the people are willing to reside in the urban regions rather than the rural ones However, the recent global financial crisis resulted to a downfall in USA’s potentials to produce in excess and crushed down its investment potentials as well. The brunt of this shock thus fell upon the economy of UK; to be precise, the UK. The population is scarce however, which is the reason which raises a concern about the absorption of demand. Though the national population is unlikely to have many inhibitions about their choice of goods according to the country of origin, the demand for domestic goods is likely to recede once the doors are left completely ajar to products from the BRIC countries. Hence, the shift of economic power from the Triad region to BRIC nations has left the future of UK business at the mercy of trade barriers framed by the EU. In fact, the amount of pressure that the EU has to endure from the emerging powers, the time is near when goods from BRIC will capture the UK market (CIA, 2010). Technical environment surmounting the market of UK Technical development requires the availability of ample energy resources in which UK is quite affluent in. However, similar conclusion could be arrived at in cases of the BRIC nations. In fact, Russia is one of the major energy houses in the world. Moreover, according to allowances being made by the UNO, the emerging economies, for the sake of their development, have the liberty to use more volumes of energy than the advanced nations can. Moreover, the concentration of world’s population is mostly found in the former region, which handicaps UK’s future prospects (Vision 2030, n.d., p. 2). Conclusion The present paper dealt with the impact that UK business is likely to face of a shift in economic power from the Triad region to that of the BRIC nations. While UK had been an influential entity among the Triad, the BRIC nations encompass four emerging market economies of the world which recently have had the taste of liberalisation. The situation for UK business houses today could be regarded as an alarming one especially after a careful evaluation of the political, economic, social and technical scenarios featuring the domestic market. They are likely to face tough competition from the BRIC nations in the future nearby and hence, would be wise to reduce their dependence from that of USA. UK thus, faces a not-so-bright future ahead given the concentration of most of the world’s reserves and production factors among the BRIC nations, indicating their growing importance as global powers. Under a scenario where exports and imports have reduced remarkably, the only way through which the economy could be soared up through boosting the service sector. References Borodina, S. & Shvyrkov, O. (2010). Investing in BRIC Countries: Evaluating Risk and Governance in Brazil, Russia, India, and China. New York, USA: McGraw-Hill. British Embassy Beijing. (May 13, 2008). “UK business environment”. Available at http://ukinchina.fco.gov.uk/en/business/Export-help-for-UK-companies/uk-business-environment (Accessed: November 30, 2010). Central Intelligence Agency (2010). “Europe: United Kingdom”. Available at https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html (Accessed: December 2, 2010). Dash, S. (2007). “BRIC Markets: Investment Rationale, Risks and Access Options”. Standard & Poor’s. Available at http://www2.standardandpoors.com/spf/pdf/index/062207_BRIC-Investing-Report.pdf (Accessed: November 30, 2010). D’Little, A. (2009). “Shifting Centers of Gravity: The end of the automotive industry as we know it?” Available at http://www.adl.com/uploads/tx_extthoughtleadership/ADL_Shifting_Centers_of_Gravity.pdf (Accessed: December 7, 2010). Goldman Sachs Global Economics Group. (2007). “BRICS and beyond”. Available at http://www2.goldmansachs.com/ideas/brics/book/BRIC-Full.pdf (Accessed: November 30, 2010). Hennigan, M. (November 26, 2010). “Europe has less dynamic business environment than US; European firms grow/ shrink at slower pace”. Finfacts Ireland. Available at http://www.finfacts.ie/irishfinancenews/article_1021117.shtml (Accessed: November 30, 2010). Icard, A. (2010). “Capital account liberalization in China: international perspectives”. Available at http://www.bis.org/publ/bppdf/bispap15e.pdf (Accessed: November 30, 2010). Sarkar, A. N. (2009). Enhancing Global Competitiveness: Advantage India. New Delhi: I. K. International. Sheth, J. N. (2007). “Chindia’s Impact on Global Education & Innovation” [PDF]. Available at http://www.icainstitute.org/innovation07/presentations/2-SHETH.pdf (Accessed: November 30, 2010). United States Department of Commerce. (2010). “Doing Business in the United Kingdom”. Available at http://www.buyusa.gov/uk/en/uk_commercial_guide.html (Accessed: November 30, 2010). U.S. Department of State. (May 28, 2010). “Background note: United Kingdom”. Bureau of European and Eurasian Affairs. Available at http://www.state.gov/r/pa/ei/bgn/3846.htm (Accessed: November 30, 2010). Vision 2030. (No Date). “Side-by-side comparison of scenarios / visions”. Available at http://www.transportvisions.org.uk/documents/pdf/V2030-28_Scenario_Side_by_Side_Comparison.pdf (Accessed: November 30, 2010). Bibliography Borodina, S. & Shvyrkov, O. (2010). Investing in BRIC Countries: Evaluating Risk and Governance in Brazil, Russia, India, and China. New York: McGraw-Hill. Dinnie, K. (2008). Nation branding: concepts, issues, practice. London: UK: Butterworth-Heinnemann. Eltschinger, C. (2007). Source code China: the new global hub of IT outsourcing. London, UK: John Wiley. Jain, S. C. (2005). Emerging economies and the transformation of international business: Brazil, Russia, India and China (BRICs). London, UK: Edward Elgar. Appendix Comparison between the growth rate of GDP for G-7 and BRIC nations Source: Sheth, 2007 Comparison between the share of global economic output between the BRIC and G-7 nations Source: Sheth, 2007 Read More