Global Business, European and the US Markets - Essay Example

With reference to international trade and investment theory, briefly outline the main purpose of the European Union and the significance of the Single European Market for an EU-based business. International trade is the exchange of goods and services between countries. International trade is distinguished from domestic trade since it takes place entirely within a single country. International trade is sometimes called as ‘world trade’ or ‘foreign trade’ (International Trade). While studying about the investment theory we need to analyze why nation’s trade and gain a competitive advantage, why and how firms internationalize and how do they sustain competitive advantage in the international arena. When we talk about a country Comparative advantage, they are the Superior features of a country which provide it with unique benefits in global competition derived weather from national endowments or deliberate national policies. It is concept that helps answers the question all nations can gain and sustain national economic superiority. Competitive Advantage of a country’s firm is distinctive assets or competencies of a company derived from its size, assets, innovation strengths which are difficult for its competitors to duplicate or imitate. In other words the concepts tells us how a firm can gain and sustain distinctive competence vis a vis competitors. (Theories of International Trade and Investment, 2008) Single Market - European Union The European Union is a group of Western European nations working to unite the economic resources into a single economy. It is a group of 27 member states which have been united to create a political and economic community throughout Europe. The European Union imports and exports more than any one country in the world. The community’s chief trade partner is the United States. The community have special trade agreements with many other countries (European community). The main purpose behind European Union is to provide better economy to the poorer countries in Europe. It also means that trade between these countries is cheaper. Apart from this the European Union aims to promote economic and social progress and a high level of employment opportunities, thus maintaining sustainable development and a better standard of living and Gross Domestic Product of the economy. Through the establishment of economic and monetary union, they create an area without internal frontiers, which includes a single currency and it makes trade much easier. One of the reasons behind the formation of European Union was to provide a common defence phenomenon. In this way all the members will be secure in terms of defence. Through the introduction of the citizenship of Union, the rights and interests of the nationals are strengthened and protected (Folketinget). Internally the European Union has abolished trade barriers, experiencing a common currency and is constantly striving towards the convergence of improved living standards. In the words of Central Intelligence Agency : “The European Union faces a lot of difficulty in devising and enforcing common policies because of the differences in the per capita income among member states. Between 2004 and 2007, 12 countries were added to the European Union which are generally less advanced than the remaining 15 countries. Being a large Union, it has a couple of transnational issues.”The European Union itself has no border disputes with the neighbouring countries. But technically Estonia has no land agreements with Russia; on the other hand Slovenia disputes its land and maritime boundaries with Croatia. Similarly Spain has territorial and maritime issues with Morocco and with the UK over Gibraltar (Central Intelligence Agency). A single market is a trading bloc. It comprises of a free trading are and has common policies. There is freedom of movement where assets like land, labour, capital and enterprise are concerned. The main objective is that these factors of production are mobile. All the trade barriers, whether it be in the form of taxes which are fiscal, physical such as the borders and technical barriers are removed so that trading policy becomes easier. In this way the countries can form a common economic policy. The formulation of a single market leads to the freedom of movement of all the factors of production because of which the factors become economically efficient further increasing productivity. A single market economy can prove to be competitive as it makes the existence of monopolies very difficult. This means that those companies who are producing inefficiently have to close down and as a result will suffer loss of market share. There has been a very steady and gradual improvement to achieve the single market phenomenon. A treaty was established by the European Economic Community in 1957. The treaty abolished custom barriers within the EU community. A common customs tariff was established for goods from non-EEC countries. The objective was slated to be take of on 1st July, 1968. There are different kinds of trade barriers that impede the overall achievement of the common market. Custom duty is one big barrier that has to be crossed when it comes to cross border trade. There are various standards that restrict the flow of capital, goods and people; these include technical norms, health and safety standards and national regulations. The Single European Act established the single market within the European Union. It helped remove the hurdles when it came to free trade between non-member EU states. It includes benefits such as the removal of customs barriers, liberating capital movement and the opening of public procurement markets. The single currency is not practiced by all members of the European Union. It is not even successful because some members such as the Schengan Convention have opted out of the economic policies (EU facts, 2010). Despite of the fact the countries like Italy and France has signed a treaty with the EU, it still is a protectionist and is not implementing in full new single market rules. This is an offending act. Yet Italy has to abolish a set of technical rules, which restricts how trailers might be attached to tractors. Similarly there are threats of possible cultural differences too. For instance if Muslim states join may be they won’t be able to put up with the adjustments to the approach of women to meet the standards of the European Union. Then there could be destabilising effects if the criminal elements exploit the single market by not adhering to the economic policy. Significance of the Single European Market for an EU-based business is that single market is no doubt the greatest achievement of the European Union, although single market is not yet turned into a single economic area some sectors i.e. the public services still are subjected to national laws these countries are also have the responsibilities of taxations and social welfare.EU has put in place many policies to make sure market liberalization caters to all the markets and the consumers of the EU member countries. However, a wider market is available for both the consumers and the producers. Consumer protection has increased due to the standard policies implemented by the European Union in order to protect the consumers from being exploited. Regular checks are made regarding the protection of the standards. Common standards are placed on goods and services, which means that goods don’t have to be retested once they reach other member states. This increases the knowledge of both the consumers and the producers and eventually leads to creating greater competition among firms. Workers are given a lot of preference and protection. They are mobile and they can work with the same rights in any of the member states. This eventually leads to less disparity in wages among member states, and it is much more convenient for the labours to locate for jobs (bizled). 2. With reference to such EU-based companies, outline: a) The impact of emerging countries such as China, India, Russia or Brazi BRICs to be widely known as, these include countries such as Brazil, Russia, India, China and the South Africa. China formally invited South Africa in 2010, and it is one of the first African countries to join the BRICs. These are all countries which are deemed to be all at a similar stage of economic development. They all belong to the third world countries. These countries have attracted the most investor attention, providing a lot of opportunities for the investors to invest in these countries (Bloomberg Business Week, 2005). These countries hold 40% of the world population and account for 20% of the Gross domestic product. There markets and their emergence can be seen as a sign of being courageous and self-confident. A fast recovery can be seen among the largest world markets as there is a worldwide shift in the economic power taking it away from the west. The recession can be seen as a mark for this milestone. When the rest of the world was facing the burdens of the recession, the economies of India and China were increasing in terms of technology. In Brazil, the GDP did fall in the initial phases but then it accounted less ration as compared to Latin America (The Economist) It has been predicted that the agricultural output will grow three times as fast in the BRIC countries than in the other major developed countries. For world agricultural production, developing countries will provide the main source of growth. It has been expected that due to the rising incomes, there will be a shift away from the staple food towards meat and processed foods that will favour livestock and dairy products. An increase is expected in the projected growth of all imports and exports. Furthermore, it demonstrates how the economic indicators are equal in terms of global ranking between the different economies despite the deviating economic bases. It also implies that the case for including South Korea looks considerably weaker. A Goldman Sachs paper published later in December 2005 explained why Mexico was not included in the original BRICs (BRIC). b) Strategies in which UK and EU companies may benefit from the rise of these countries The world’s biggest trader, which takes control of 20% of the worlds imports and exports is The European Union. With the help of the open trade allowed to the member countries, there has been growing prosperity and affluence among these member countries. The inception of the EU around 50 years ago started the open trade and has earned growth since that time. Hence, it is this union that takes its lead in opening the doors to world trade that benefits the rich as well as the poor countries equally. The rise in trade among countries brings with it a plethora of benefits to all stakeholders. It enables a wider choice and healthy competition. It is a belief of the EU that globalisation can be a root to solve problems of the developing countries and bring advantages to the developed provided that it is adopted and implemented efficiently Due to these reasons the European Union is laying a vital role in opening trade of goods and services. One of the major objectives is to give an opportunity to the developing countries to be able to trade over the markets and give them the chance to open their own markets to European products. Moreover, the reformation of the agricultural policies would further benefit the developing countries. Bibliography (n.d.). Retrieved from http://uk.answers.yahoo.com/question/index?qid=20091113065117AATh9YT bizled. (n.d.). Retrieved 01 09, 2011, from The single market and the Euro: http://www.bized.co.uk/learn/economics/international/eu/notes/eu3.htm#Heading303 Bloomberg Business Week. (2005, 12 26). Retrieved 01 09, 2011, from Emerging Markets: Beyond the Big Four: http://www.businessweek.com/magazine/content/05_52/b3965450.htm BRIC. (n.d.). Retrieved from http://en.wikipedia.org/wiki/BRIC Central Intelligence Agency. (n.d.). Retrieved 01 09, 2011, from The World Factbook: https://www.cia.gov/library/publications/the-world-factbook/geos/ee.html EU facts. (2010, 11 18). Retrieved 01 09, 2011, from European Single Market: Single market within the European Union. Established under the Single European Act, it was the core of the process of European economic integration, involving the removal of obstacles to the free movement of goods, services, people, and capital between me European community. In The World Book Encyclopedia (pp. 427-428). Chicago, London, Sydney, Toronto: World Book, Inc. Folketinget. (n.d.). Retrieved 01 09, 2011, from Purpose of EU: http://www.eu-oplysningen.dk/euo_en/spsv/all/1/ International Trade. In The World Book Encyclopedia (p. 349). Chicago, London, Sydney, Toronto: World Book, INC. Single European Markeyt. (n.d.). Retrieved from http://www.talktalk.co.uk/reference/encyclopaedia/hutchinson/m0041300.html The Economist. (n.d.). Retrieved 01 09, 2011, from Not just straw men: http://www.businessweek.com/magazine/content/05_52/b3965450.htm Theories of International Trade and Investment. (2008). 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